Dynamic competition and intellectual property rights in a model of product development

Billette de Villemeur, Etienne and Ruble, Richard and Versaevel, Bruno (2017): Dynamic competition and intellectual property rights in a model of product development. Forthcoming in: Journal of Economic Dynamics and Control

Abstract

We study innovation timing and socially optimal intellectual property rights (IPRs) when firms facing market uncertainty invest strategically in product development. If demand growth and volatility are high, attrition occurs and IPRs should ensure the cost of imitation attains a lower bound we identify. If demand growth and volatility are low then provided that the private imitation incentive is socially excessive, IPRs should set the cost of imitation high enough to induce preemption, and possibly winner-take-all preemption. Moreover, the welfare achieved with optimal IPRs is then greater with endogenous innovation than if firm roles are predetermined, illustrating the importance of fostering dynamic competition. In extensions we show how firms benefit from open standards, takeovers have ambiguous welfare effects and simple licensing schemes are welfare improving.

• Item Type: MPRA Paper
• Language: English
• Keywords: cost of imitation; dynamic competition; patent policy; winner-take-all preemption
• Subjects: G - Financial Economics > G3 - Corporate Finance and Governance > G31 - Capital Budgeting ; Fixed Investment and Inventory Studies ; Capacity; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O33 - Technological Change: Choices and Consequences ; Diffusion Processes

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