Optimal Rules for Patent Races, International Economic Review
This paper analyzes optimal patent policy in a dynamic multi-stage innovation model where firms compete to receive a patent and its associated prize. Firms control their independent R&D project and invest to reach the stage at which a patent is awarded. At this stage, the laggard firms are forced to leave the race and the winner continues to invest in R&D until the innovation process has achieved its goal. Firms are assumed to possess perfect information about each others' innovation state and cost structures. A planner, who cannot distinguish between the firms, chooses the stage at which the patent is awarded and the magnitude of the prize to the winner to maximize either a ''social'' or a ''consumer'' surplus. We study the evolution of competition along the race path, explore the socially optimal patent policy and the sensitivity of R&D investment and competition to the prize level and the degree of heterogeneity between the firms.
Kenneth L. Judd, Karl Schmedders, Sevin Yeltekin
Judd, L. Kenneth, Karl Schmedders, and Sevin Yeltekin. 2012. Optimal Rules for Patent Races. International Economic Review. 53: 23-52.