DP7511 Waiting to imitate: on the dynamic pricing of knowledge

Author(s): Emeric Henry, Carlos Ponce
Publication Date: October 2009
Keyword(s): contracting, knowledge trading, Patents, war of attrition
JEL(s): C73, D23, L24, O31, O34
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=7511

We study the problem of an inventor who brings to the market an innovation that can be legally copied. Imitators may 'enter' the market by copying the innovation at a cost or by buying from the inventor the knowledge necessary to reproduce and use the invention. The possibility of contracting affects the need for patent protection. Our results reveal that: (i) Imitators wait to enter the market and the inventor becomes a temporary monopolist; (ii) The inventor offers contracts which allow resale of the knowledge acquired by the imitators; (iii) As the pool of potential imitators grows large, the inventor may become a permanent monopolist.