Patents, Imitation and Licensing in an Asymmetric Dynamic R&D Race

36 Pages Posted: 15 May 2006

See all articles by Chaim Fershtman

Chaim Fershtman

Tel Aviv University - Eitan Berglas School of Economics; Tinbergen Institute

Sarit Markovich

Kellogg School of Management

Date Written: February 2006

Abstract

R&D is an inherently dynamic process which involves different intermediate steps that need to be developed before the completion of the final invention. Firms are not necessarily symmetric in their R&D abilities; some may have advantages in early stages of the R&D process while others may have advantages in other stages of the process. The paper uses a simple two-firm asymmetric ability multistage R&D race model to analyse the effect of different types of patent policy regimes and licensing arrangement on the speed of innovation, firm value and consumers' surplus. The paper demonstrates the circumstances under which a weak patent protection regime, which facilitates free imitation of any intermediate technology, may yield a higher overall surplus than a regime that awards patent for the final innovation. This result holds even in cases where the length of the patent is optimally calculated.

Keywords: Patent protection, R&D race, licensing

JEL Classification: D43, L1, O3

Suggested Citation

Fershtman, Chaim and Markovich, Sarit, Patents, Imitation and Licensing in an Asymmetric Dynamic R&D Race (February 2006). CEPR Discussion Paper No. 5481, Available at SSRN: https://ssrn.com/abstract=902343

Chaim Fershtman (Contact Author)

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel
+972 3 640 7167 (Phone)
+972 3 640 9908 (Fax)

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Sarit Markovich

Kellogg School of Management ( email )

2211 Campus Drive
Kellogg
Evanston, IL IL 60208
United States

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