Theoretical aspects in Innovation models

Project: Research Project

Project Details


Project 1: Vertical Control in Innovation Processes

Current competition policy has considered vertical restrains to be broadly anti-competitive as they allow a manufacturer to control the decision of downstream firms. Vertical control such as resale price maintenance, tie-ins, and exclusive territories are regarded as per-se prohibitions as they facilitate the abuse of the dominant position by a dominant firm. However, little attention has been paid to situations using such restrains in a research environment.

We consider a continuous-time innovation race between two upstream firms competing to be the first to sell an innovation to downstream firms. Innovation is uncertain, and potential innovations are not sure about the feasibility of the innovation they are working on. We argue that vertical restraints may be welfare-enhancing to the extent that they may provide incentives to innovate.

Project 2: Demand for patent systems when economic agents do not anticipate equilibrium effects

The primary purpose of patent systems is to reward innovations. However, since these rewards generate market power, the market outcome is not efficient from a static perspective. The market allocation causes a welfare loss. Yet, without market power, firms will not have incentives to innovate. As a result, the innovation process generates a trade-off between static and dynamic efficiency. However, this trade-off is, in general, not well understood. People do not acknowledge long-term equilibrium effects of policies. For instance, after developing Covid-19 vaccines, the public is showing concern about the existing patents. People demand Moderna increase vaccine production, cooperate and share technology with other manufacturers, and commit to lower pricing.

We consider a simple model with a single innovation and aim to characterize the optimal patent length. The optimal patent length will consider the trade-off between the static and dynamic considerations of granting a patent. We compare the optimal patent length with a situation in which the society does not fully consider equilibrium effects, i.e., how patents' length will generate incentives to innovate.
Effective start/end date4/1/222/29/24


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