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Part II - Innovation Theory (I): Cumulative Innovation

Published online by Cambridge University Press:  12 October 2017

Edited by
Stephen M. Maurer
Stephen M. Maurer
Affiliation:
University of California, Berkeley
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Summary

In markets with sequential innovation, inventors of derivative improvements might undermine the profit of initial innovators through competition. Profit erosion can be mitigated by broadening the first innovator’s patent protection and/or by permitting cooperative agreements between the initial innovators and later innovators. We investigate the policy that is more effective at ensuring the first innovator earns a large share of profit from the second-generation product it facilitates. In general, not all the profit can be transferred to the first innovator, and therefore patents should last longer when a sequence of innovations is undertaken by different firms rather than being concentrated in one firm.

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On the Shoulders of Giants
Colleagues Remember Suzanne Scotchmer's Contributions to Economics
 , pp. 44
Publisher: Cambridge University Press
Print publication year: 2017

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References

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