Vincenzo Denicolò

Patent races and optimal patent breadth and length

This paper reexamines the issue of optimal patent breadth in extending the earlier literature to the case where many firms race for a patent. It also discusses several examples that suggest the relevance of the nature of competition prevailing in the product market to explain the diverse results found in the literature. Loosely speaking, the less efficient is competition in the product market, the more likely it is that broad and short patents are socially optimal. Copyright 1996 by Blackwell Publishing Ltd.

Patents, Secrets, and the First-Inventor Defense

We analyze optimal patent design when innovators can rely on secrecy to protect their innovations. Secrecy has no fixed term but does not preclude accidental disclosure nor independent creation by other inventors. We derive the optimal scope of the rights conferred to such second inventors, showing that if the patent life is set optimally, second inventors should be allowed to patent and to exclude first inventors who have relied on secrecy. We then identify conditions under which it is socially desirable to increase patent life as much as is necessary to induce first inventors to patent. The circumstances in which it is preferable that they rely on secrecy seem rather limited. Copyright 2004 Blackwell Publishing, 350 Main Street, Malden, MA 02148, USA, and 9600 Garsington Road, Oxford OX4 2DQ, UK..

R & D investment in a symmetric and homogeneous oligopol: Bertrand vs Cournot☆

Abstract In this paper we compare the equilibrium R & D investment under Bertrand and Cournot competition in a symmetric and homogeneous oligopoly. It is shown that, although the R&D investment is greater under Bertrand competition, social welfare, net of R & D costs, may be greater under Cournot competition. This conflict between static and dynamic efficiency arises because too many resources may be invested in R & D when there is price competition in the product market.

Compatibility and Bundling with Generalist and Specialist Firms

I analyze compatibility and bundling choices when one generalist firm offering both components of a system competes against two specialist firms each supplying one component only (but not the same one). I show that the generalist firm may have an incentive to choose incompatibility or engage in pure bundling when one component is less differentiated than the other. In this case, the system is more differentiated than the relatively undifferentiated component, and so under incompatibility the specialist firm that produces the undifferentiated component will relax price competition. This may result in higher profits for some of the competing firms.

Incentives to Innovate in a Cournot Oligopoly

We study the R&D performance of Cournot aligopolists. To this end we model a one-shot noncooperative game in which firms invest in R&D, with the aim of being first in an uncertain competition for a patentable cost-reducing innovation. The incentives to innovate are market profits and not exogenously given prizes as in most of the earlier literature. Thus, incentives depend on the number of firms. We show that increasing rivalry may increase or decrease the individual R&D espenditure, there may be underinvestment with the various effect to the socially optimal level. Moreover, we identify the various effects which are responsible for the difference between our results and some conclusions of closely related contributions.

Regulating Innovative Activity: the Role of a Public Firm

Abstract Without spillovers and under the ‘winner-take-all’ hypothesis, there is overinvestment in R & D in a non-cooperative equilibrium due to duplication of effort. We show that a public firm can represent an effective instrument in the hands of a policymaker to mitigate such a problem. In particular, it is proved that, in a mixed duopoly: (i) each firm invests less than in a private duopoly, and (ii) although the expected time of innovation is postponed, social welfare is higher than in a private duopoly.

Specific and Ad Valorem Taxation in Asymmetric Cournot Oligopolies

This paper compares ad valorem and specific taxes in asymmetric homogenous Cournot oligopolies with constant marginal costs. We show that for any given level of industry output, ad valorem taxes are superior to specific taxes in terms of revenue raised. If the tax rates are sufficiently high, for any given specific tax one can find an ad valorem tax that leads to greater tax revenue, consumer surplus, and industry profits.

Rationing in a Durable Goods Monopoly

We offer a new explanation of equilibrium rationing. As is well known, a monopolist selling a durable good and not able to commit to a price sequence has an incentive to lower the price once the consumers with the greatest willingness to pay have bought, but this induces consumers to postpone purchases. We show that rationing reduces the incentive to lower future prices and may allow the monopolist to increase his discounted profit.

The optimal life of a patent when the timing of innovation is stochastic

This paper studies the optimal lifetime of a patent in a model where the timing of innovatons: is uncertain. We assume a Poisson discovery process with a linear hazard function and contractural RD ii) oligopoly with free entry; iii) perfect competition. Several comparative staties results are derived.

Competition with Exclusive Contracts and Market-Share Discounts

We study the effects of exclusive contracts and market-share discounts (i.e., discounts conditioned on the share a firm receives of the customers total purchases) in an adverse selection model where firms supply differentiated products and compete in non-linear prices. We show that exclusive contracts intensify the competition among the firms, increasing consumer surplus, improving efficiency, and reducing profits. Firms would gain if these contracts were prohibited, but are caught in a prisoners dilemma if they are permitted. In this latter case, allowing firms to offer also market-share discounts unambiguously weakens competition, reducing efficiency and harming consumers. However, starting from a situation where exclusive contracts are prohibited, the effect of market-share discounts (which include exclusive contracts as a limiting case) is ambiguous.