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Do Stronger Patents Lead to Faster Innovation? The Effect of Duplicative Search

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  • Kaustav Das
  • Nicolas Klein

Abstract

We analyse a model of two firms that are engaged in a patent race. Firms have to choose in continuous time between a traditional and an innovative method of pursuing the decisive breakthrough. They share a common belief about the likelihood of the innovative method being good. The unique Markov perfect equilibrium coincides with the cartel solution if and only if firms are symmetric in their abilities of leveraging a good innovative method or there is no patent protection. Otherwise, equilibrium will entail excessive duplication of efforts in the innovative method, as compared to the cartel benchmark, for any level of patent protection. We show that the expected time to a breakthrough is minimised at an interior level of patent protection, providing a possible explanation for the decrease in R&D productivity sometimes associated with stronger patent protections.

Suggested Citation

  • Kaustav Das & Nicolas Klein, 2020. "Do Stronger Patents Lead to Faster Innovation? The Effect of Duplicative Search," Discussion Papers in Economics 20/03, Division of Economics, School of Business, University of Leicester.
    • Handle: RePEc:lec:leecon:20/03
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    References listed on IDEAS

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    Cited by:

    1. Johannes Hoelzemann & Nicolas Klein, 2021. "Bandits in the lab," Quantitative Economics, Econometric Society, vol. 12(3), pages 1021-1051, July.

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    More about this item

    Keywords

    R&D competition; Duplication; Two-armed Bandit; Learning;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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