DP13087 Some Simple Economics of Patent Protection for Complex Technologies

Author(s): Vincenzo Denicolò, Piercarlo Zanchettin
Publication Date: July 2018
Keyword(s): Complementarity, Division of profit, Elasticity of the supply of inventions, Patent design, Sequential innovation
JEL(s): O30, O40
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13087

We analyze patent protection when innovative technologies are "complex" in that they involve sequential and complementary innovations. We argue that complexity affects the classic Nordhaus trade-off between innovation and static monopoly distortions. We parametrize the degree of sequentiality and that of complementarity and show that the optimal level of patent protection increases with both. We also address the issue of the optimal division of profit among different innovators.