Issue: Winter 1996
Pages: pp. 722-746
Authors: Mukesh Eswaran and Nancy Gallini
Title: Patent Policy and the Direction of Technological Change
Abstract: In this article we examine the interaction between firms' product and process innovation decisions, and the role patent policy can play in directing technological change toward a socially efficient mix of innovations. Product innovation is a variant on a pioneer's new product; process innovation improves upon the cost efficiency of production. In a model with heterogeneous consumers, we show that an entrant relaxes competition by trading off too much process innovation in favor of product innovation, relative to what the social planner would desire. This bias toward product innovation can be corrected through appropriate choice of patent breadths on product and process innovations.
Technological Change: Government Policy (O380)
Research and Development (6212)