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Dynamic Effects of Patent Policy on Sequential Innovation
Author(s) -
Koo Bonwoo,
Wright Brian D.
Publication year - 2010
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/j.1530-9134.2010.00259.x
Subject(s) - scope (computer science) , profit (economics) , competition (biology) , ex ante , economics , patentability , industrial organization , innovator , dynamic efficiency , microeconomics , deadweight loss , business , intellectual property , welfare , patent law , market economy , computer science , neoclassical economics , entrepreneurship , macroeconomics , finance , biology , programming language , operating system , ecology
When one patented innovation enables another, endogenous delay of the latter has important implications for the economics of patent life and scope, if licensing is negotiated ex post. Optimal patent life may be finite under competition, even if the royalty imposes no deadweight loss and there is no competitive dissipation of rent. Reduced scope of the first patent eliminates delay of costly enabled innovations, whether monopolized or competitive, and a combination of limited scope and infinite life can be optimal. If the second innovation is negotiated ex ante, its patentability can increase or decrease the first innovator's profit, depending on cost and market structure of the second innovation, and patent life .