OPTIMAL RULES FOR PATENT RACES

There are two important rules to patent races: minimal accomplishment necessary to receive the patent and the allocation of the innovation benefits. We study the optimal combination of these rules. A planner, who cannot distinguish between competing firms in a multistage innovation race, chooses the...

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Bibliographic Details
Published in:International economic review (Philadelphia) 2012-02, Vol.53 (1), p.23-52
Main Authors: Judd, By Kenneth L., Schmedders, Karl, Yeltekin, Şevin
Format: Article
Language:English
Subjects:
Auctions
Competition
Competitiveness
Consumer surplus
Cost efficiency
Deadweight loss
Economic models
Enterprises
Innovation
Innovations
Intellectual property
Investment policy
Monopoly
Patent policy
Product innovation
Strategic planning
Studies
Technological innovation
Technology
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Summary:There are two important rules to patent races: minimal accomplishment necessary to receive the patent and the allocation of the innovation benefits. We study the optimal combination of these rules. A planner, who cannot distinguish between competing firms in a multistage innovation race, chooses the patent rules by maximizing either consumer or social surplus. We show that efficiency cost of prizes is a key consideration. Races are undesirable only when efficiency costs are low, firms are similar, and social surplus is maximized. Otherwise, the optimal policy involves a race of nontrivial duration to spur innovation and filter out inferior innovators.
ISSN:0020-6598
1468-2354
DOI:10.1111/j.1468-2354.2011.00670.x