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Title: Patents, Imitation and Licensing in an Asymmetric Dynamic R&D Race

Author(s): Chaim Fershtman and Sarit Markovich

Publication Date: February 2006

Keyword(s): licensing, patent protection and R&D race

Programme Area(s): Industrial Organization

Abstract: R&D is an inherently dynamic process which involves different intermediate steps that need to be developed before the completion of the final invention. Firms are not necessarily symmetric in their R&D abilities; some may have advantages in early stages of the R&D process while others may have advantages in other stages of the process. The paper uses a simple two-firm asymmetric ability multistage R&D race model to analyse the effect of different types of patent policy regimes and licensing arrangement on the speed of innovation, firm value and consumers' surplus. The paper demonstrates the circumstances under which a weak patent protection regime, which facilitates free imitation of any intermediate technology, may yield a higher overall surplus than a regime that awards patent for the final innovation. This result holds even in cases where the length of the patent is optimally calculated.

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Bibliographic Reference

Fershtman, C and Markovich, S. 2006. 'Patents, Imitation and Licensing in an Asymmetric Dynamic R&D Race'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=5481