Catching-up or Leapfrogging: The effects of competition on innovation and growth

This article analyzes the "escape from competition effect" in a step-by-step framework in which a succesful firm may either leapfrog the previous leader or catch-up its technology. Innovation and growth are affected by both the intensity of competition and the probability of leapfrogging.Leapfrogging, catch-up

Licensing weak patents

In this paper, we revisit the issue of licensing ‘weak' patents under the shadow of litigation. Departing from the seminal paper by Farrell and Shapiro [2008], we consider innovations of any size and not only ‘small' innovations, and we allow the number of licensees to be less than the number of firms in the downstream industry. It is shown that the optimal two-part tariff license from the patent holder's perspective may either deter or trigger litigation, and conditions underwhich each case arises are provided. We also reexamine the claim that the licensing revenues from ‘weak' patents overcompensate the patent holder relative to what a natural benchmarkwould command. Finally we suggest two policy levers that may alleviate the harm raised by the licensing of ‘weak' patents.Licensing Schemes ; Probabilistic Rights ; Patent Litigation

First-Degree Discrimination by a Duopoly: Pricing and Quality Choice

The paper examines under what conditions vertically differentiated duopolists engage in first-degree price discrimination. Each firm decides on a pricing regime at a first stage and sets prices at a second stage. The paper shows that when unit cost is an increasing and convex function of quality, the discriminatory regime is the unique subgame-perfect equilibrium of such two-stage game. In contrast to the case of horizontal differentiation, the discriminatory equilibrium is not necessarily Pareto-dominated by a bilateral commitment to uniform pricing. Also, the quality choices of perfectly discriminating duopolists are welfare maximizing. The paper explains why a threat of entry may elicit price discrimination by an incumbent monopolist.competition in pricing regimes, duopoly, quality choice

Competition Policy and Innovation

L'article analyse les complémentarités et les tensions entre la concurrence et l'innovation tant du point de vue des instruments d'analyse que du point de vue des politiques économiques.competition for the market; patent thicket; pools

First degree discrimination in a competitive setting : pricing and quality choice

The paper investigates competition in price schedules among vertically differentiated producers. First order price discrimination leading to personalized prices are the perfect equilibrium of the two-stage game where firms choose at the first stage to commit or not to a uniform price and compete at the second stage. Whether the profits earned by both firms are larger or smaller under discrimination than under uniform pricing depends on the quality gap between firms and on the disparity of consumer preferences. Finally, firms engaged in first degree discrimination choose quality levels that are optimal from a welfare perspective.Price discrimination, price schedules, personalized prices, vertical differentiation.

Choosing Intellectual Protection: Imitation, Patent Strength and Licensing

This paper investigates the choice of an intellectual protection regime for a process innovation. We set up a multi-stage model in which choosing between patent and trade secrecy is affected by three parameters : the patent strength defined as the probability that the right is upheld by the court, the cost of imitating a patented innovation relative to the cost of imitating a secret innovation, and the innovation size defined as the extent of the cost reduction. The choice of the protection regime is the result of two effects: the damage effect evaluated under the unjust enrichment doctrine and the effect of market competition that occurs under the shadow of infringement. We find that large innovations are likely to be kept secret whereas small innovations are always patented. Furthermore, medium innovations are patented only when patent strength is sufficiently high. Finally, we investigate a class of licensing agreements used to settle patent disputes between patent holders and their competitors.patent, trade secrecy, imitation, licensing

Choosing Intellectual Protection: Imitation, Patent Strength and Licensing

Patents are probabilistic rights. We set up a multi-stage model in which choosing between patent and trade secrecy is affected by three parameters : the patent strength defined as the probability that the right is upheld by the court, the cost of imitating a patented innovation relative to the cost of imitating a secret innovation, and the innovation size defined as the magnitude of the cost reduction. The choice of the protection regime is the result of two effects: the damage effect evaluated under the unjust enrichment doctrine and the effect of market competition that occurs under the shadow of infringement. We find that large innovations are likely to be kept secret whereas small innovations are always patented. Furthermore, medium innovations are patented only when patent strength is sufficiently high. Finally, we investigate a class of patent licensing agreements used to settle patent disputes between patent holders and their competitors.probabilistic right, patent strength, innovation size, imitation cost; trade secrecy

Patent Systems for Encouraging Innovation: Lessons from Economic Analysis

Economic theory views patents as policy instruments aimed at fostering innovation and diffusion. Three major implications are drawn regarding current policy debates. First, patents may not be the most effective means of protection for inventors to recover R&D investments when imitation is costly and first mover advantages are important. Second, patentability requirements, such as novelty or non-obviousness, should be sufficiently stringent to avoid the grant of patents for inventions with low social value that increase the social cost of the patent system. Third, the trade-off between the patent policy instruments of length and breadth could be used to provide sufficient incentives to develop inventions with high social value. Beyond these three implications, economic theory also pleads for a mechanism design approach: an optimal patent system could be based on a menu of different degrees of patent protection where stronger protection would involve higher fees, allowing self-selection by inventors.Patent subject matter, patentability requirements, sequential innovation, incentive mechanism, license fee

Catching-up or Leapfrogging: The effects of competition on innovation and growth

This article analyzes the "escape from competition effect" in a step-by-step framework in which a succesful firm may either leapfrog the previous leader or catch-up its technology. Innovation and growth are affected by both the intensity of competition and the probability of leapfrogging.Cet article analyse l'incitation à innover pour échapper à la pression concurentielle dans le cadre d'un processus d'innovations à pas successifs dans lequel une firme innovante peut soit dépasser le leader précédent, soit rattraper son niveau technologique. L'intensité de la concurrence et la probabilité de dépassement affectent l'innovation et la croissance

Per-Unit Royalty vs Fixed Fee: The Case of Weak Patents

This paper explores a licensor's choice between charging a per-unit royalty or a …fixed fee when her innovation is covered by a weak patent, i.e. a patent that is likely to be invali- dated by a court if challenged. Using a general model where the nature of competition is not speci…ed, we show that the patent holder prefers to use a per-unit royalty scheme if the strategic e¤ect of an increase in a potential licensee's unit cost on the aggregate equi- librium pro…t is positive. To show the mildness of the latter condition, we establish that it holds in a Cournot (resp. Bertrand) oligopoly with homegenous (resp. heterogenous) products under very general assumptions on the demands faced by …rms. As a byproduct of our analysis, we contribute to the oligopoly literature by o¤ering some new insights of independent interest regarding the e¤ects of cost variations on Cournot and Bertrand equilibria.Keywords: Licensing Schemes, Weak Patents, Patent Litigation.