Issue: Spring 1995
Pages: pp. 20-33
Authors: Jerry R. Green and Suzanne Scotchmer
Title: On the Division of Profit in Sequential Innovation
Abstract: 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 initial innovators and later innovators. We investigate the policy that is most effective at ensuring the first innovator earns a large share of profit from the second-generation products 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.
Intellectual Property Rights: National and International Issues Patents, Copyrights (O340)
Management of Technological Innovation and R&D (O320)
Technological Change; Innovation; Research and Development: General (6210)
Technological Change and Innovation (6211)
Research and Development (6212)