Technology adoption, learning spillovers, and the optimal duration of patent-based monopolies

The paper analyses an often overlooked aspect of the patent system, namely, that a monopoly franchise for production of a new good could lead to a second-best welfare optimum event when there was no future prospect of inventions being induced by the patent. It is shown that a paten may improve econo...

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Bibliographic Details
Published in:International journal of industrial organization 1992-12, Vol.10 (4), p.517-543
Main Authors: David, Paul A., Olsen, Trond E.
Format: Article
Language:English
Subjects:
Competition
Economic models
Learning
Monopolies
Production functions
Supply & demand
Technology
Technology adoption
Welfare economics
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Summary:The paper analyses an often overlooked aspect of the patent system, namely, that a monopoly franchise for production of a new good could lead to a second-best welfare optimum event when there was no future prospect of inventions being induced by the patent. It is shown that a paten may improve economic welfare relative to a regime of competitive supply when there are learning externalities or ‘spillovers’ from experience in the process of production. Comparative statics show that stronger learning effects at low levels of experience tend to strengthen the case for ex post grant of a monopoly franchise.
ISSN:0167-7187
1873-7986
DOI:10.1016/0167-7187(92)90058-7