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Two-Stage Patent Races and Patent Policy

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  • Vincenzo Denicolò

Abstract

I analyze the optimal degree of forward patent protection in a two-stage patent race framework. I compare three patent regimes, as the second innovation may be unpatentable and infringing (UI), patentable and infringing (PI), or patentable and not infringing (PN). Forward protection is highest in regime UI and lowest in regime PN. I identify a fundamental inefficiency affecting regime UI, namely that it always leads to underinvestment in the second innovation, and I note various determinants of the welfare ranking of the regimes. Specifically, strong forward protection becomes less attractive as the relative profitability of the first innovation increases and the relative difficulty of obtaining it decreases.

Suggested Citation

  • Vincenzo Denicolò, 2000. "Two-Stage Patent Races and Patent Policy," RAND Journal of Economics, The RAND Corporation, vol. 31(3), pages 450-487, Autumn.
    • Handle: RePEc:rje:randje:v:31:y:2000:i:autumn:p:450-487
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    Cited by:

    1. Payot, Frederic & Szalay, Dezsö, 2008. "Sequential Innovations and Intellectual Property Rights," The Warwick Economics Research Paper Series (TWERPS) 864, University of Warwick, Department of Economics.
    2. Gilbert, Richard J. & Katz, Michael L., 2011. "Efficient division of profits from complementary innovations," International Journal of Industrial Organization, Elsevier, vol. 29(4), pages 443-454, July.
    3. Liad Wagman & Vincent Conitzer, 2012. "Choosing fair lotteries to defeat the competition," International Journal of Game Theory, Springer;Game Theory Society, vol. 41(1), pages 91-129, February.
    4. Robert M. Hunt, 2004. "Patentability, Industry Structure, and Innovation," Journal of Industrial Economics, Wiley Blackwell, vol. 52(3), pages 401-425, September.
    5. Miller, David A., 2008. "Invention under uncertainty and the threat of ex post entry," European Economic Review, Elsevier, vol. 52(3), pages 387-412, April.

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