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A dynamic model of patent portfolio races

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  • Denicolò, Vincenzo
  • Zanchettin, Piercarlo

Abstract

We propose a dynamic model of a patent portfolio race in an industry in which innovation is incremental. Two firms compete in prices and in research. We study the Markov perfect (closed-loop) equilibrium of the resulting differential game, identifying a steady state in which firms compete neck and neck. In this equilibrium, innovation rates are inefficiently high from the firms’ viewpoint. The firms are caught in a prisoners’ dilemma and so have an incentive not to enforce their patents aggressively in order to coordinate on a more “cooperative” equilibrium.

Suggested Citation

  • Denicolò, Vincenzo & Zanchettin, Piercarlo, 2012. "A dynamic model of patent portfolio races," Economics Letters, Elsevier, vol. 117(3), pages 924-927.
    • Handle: RePEc:eee:ecolet:v:117:y:2012:i:3:p:924-927
    DOI: 10.1016/j.econlet.2012.07.015
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    References listed on IDEAS

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    1. Wesley M. Cohen & John P. Walsh, 2008. "Real Impediments to Academic Biomedical Research," NBER Chapters, in: Innovation Policy and the Economy, Volume 8, pages 1-30, National Bureau of Economic Research, Inc.
    2. Serrano, Roberto & Zapater, Inigo, 1998. "The Three-Legged Race: Cooperating to Compete," Games and Economic Behavior, Elsevier, vol. 22(2), pages 343-363, February.
    3. Michael Noel & Mark Schankerman, 2013. "Strategic Patenting and Software Innovation," Journal of Industrial Economics, Wiley Blackwell, vol. 61(3), pages 481-520, September.
    4. Christopher Harris & John Vickers, 1987. "Racing with Uncertainty," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 54(1), pages 1-21.
    5. Ilya Segal & Michael D. Whinston, 2007. "Antitrust in Innovative Industries," American Economic Review, American Economic Association, vol. 97(5), pages 1703-1730, December.
    6. Siebert, Ralph & von Graevenitz, Georg, 2010. "Jostling for advantage or not: Choosing between patent portfolio races and ex ante licensing," Journal of Economic Behavior & Organization, Elsevier, vol. 73(2), pages 225-245, February.
    7. Philippe Aghion & Christopher Harris & Peter Howitt & John Vickers, 2001. "Competition, Imitation and Growth with Step-by-Step Innovation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 68(3), pages 467-492.
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    Cited by:

    1. Jay Pil Choi & Heiko Gerlach, 2017. "A Theory of Patent Portfolios," American Economic Journal: Microeconomics, American Economic Association, vol. 9(1), pages 315-351, February.
    2. Jason M. Walter & Jeffrey M. Peterson, 2017. "Strategic R&D and the innovation of products: understanding the role of time preferences and product differentiation," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 26(7), pages 575-595, October.
    3. Wu, Cheng-Han, 2019. "Licensing to a competitor and strategic royalty choice in a dynamic duopoly," European Journal of Operational Research, Elsevier, vol. 279(3), pages 840-853.
    4. Haejun Jeon, 2016. "Patent litigation and cross licensing with cumulative innovation," Journal of Economics, Springer, vol. 119(3), pages 179-218, November.

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    More about this item

    Keywords

    Patent portfolios; Incremental innovation; Cross-licensing; Differential game;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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