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Complementary research strategies, first-mover advantage and the inefficiency of patents

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  • Luigi Bonatti

Abstract

In a realistic framework where the potential innovators� research lines are imperfectly correlated and imitation takes some time, this paper studies an industry regulated by an authority which can tax (subsidize) the firms� pure profits (R&D expenditures). By comparing the market equilibrium emerging when there is patent protection with the market equilibrium emerging without patents, the paper finds that social welfare is higher in the absence of patents. This result is driven by the fact that�without patents--more than one successful inventor may implement its discovery and enter the market, thus reducing the deadweight loss due to imperfect competition.

Suggested Citation

  • Luigi Bonatti, 2007. "Complementary research strategies, first-mover advantage and the inefficiency of patents," Department of Economics Working Papers 0717, Department of Economics, University of Trento, Italia.
    • Handle: RePEc:trn:utwpde:0717
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    More about this item

    Keywords

    Innovation; temporary monopoly; lead time; market regulation; patents.;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • 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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