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Imperfect patent protection, licensing, and willingness to pay for the innovation

Author

Listed:
  • Carlo Capuano

    (University of Naples Federico II)

  • Iacopo Grassi

    (University of Naples Federico II)

Abstract

This article analyzes the ways in which imperfect patent protection affects patent holders’ licensing decisions, firms’ willingness to pay for the innovation, and social welfare. We consider a cost-reducing innovation by either an incumbent or a (potential) entrant. According to our analysis, when patent protection is high enough, the entrant is willing to pay more compared with the incumbent, it licenses the innovation exclusively, and it acts as a non-practicing entity. In the case of low patent protection, the threat of imitation discourages licensing agreements, and consequently, the incumbent ends up investing more. Thus, the level of patent protection impacts the structure of the market, affecting R&D appropriability and social welfare.

Suggested Citation

  • Carlo Capuano & Iacopo Grassi, 2020. "Imperfect patent protection, licensing, and willingness to pay for the innovation," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 47(2), pages 333-359, June.
    • Handle: RePEc:spr:epolin:v:47:y:2020:i:2:d:10.1007_s40812-019-00142-w
    DOI: 10.1007/s40812-019-00142-w
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    More about this item

    Keywords

    Patents; Licensing; wtp; npe; Welfare;
    All these keywords.

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing

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