Intellectual Property Rights Policy, Competition And Innovation

To what extent and in what form should the intellectual property rights (IPR) of innovators be protected? Should a company with a large technology lead over its rivals receive the same IPR protection as a company with a more limited advantage? The analysis of these questions necessitates a dynamic framework for the study of the interactions between IPR and competition, in particular to understand the impact of such policies on future incentives. In this paper, we develop such a framework. The economy consists of many industries and …rms engaged in cumulative (step-by-step) innovation. IPR policy regulates whether followers in an industry can copy (or license or build upon) the technology of the leader. With full patent protection, followers can catch up to the leader in their industry only by making the same innovation(s) themselves (or by full licensing). We prove the existence of a steadystate equilibrium in a baseline environment and characterize some of its properties. We then