Preemption, leapfrogging and competition in patent races

Drew Fudenberg*, Richard Gilbert, Joseph Stiglitz, Jean Tirole

*Corresponding author for this work

    Research output: Contribution to journalArticlepeer-review

    246 Scopus citations

    Abstract

    This paper investigates when patent races will be characterized by vigorous competition and when they will degenerate into a monopoly. Undersome conditions, a firm with an arbitrarily small headstart can preempt its rivals. Such 'ε{lunate}-preemption' is shown to depend on whether a firm that is behind in the patent race, as measured by the expected time remaining until discovery, cant 'leapfrog' the competition and become the new leader. An example of an R&D game with random discovery illustrates how ε{lunate}-preemption can occur when leapfrogging is impossible. A multi-stage R&D process allows leapfrogging and thus permits competition. A similar conclusion emerges in a model of a deterministic patent race with imperfect monitoring of rival firms' R&D investment activities.

    Original languageEnglish (US)
    Pages (from-to)3-31
    Number of pages29
    JournalEuropean Economic Review
    Volume22
    Issue number1
    DOIs
    StatePublished - Jun 1983

    ASJC Scopus subject areas

    • Finance
    • Economics and Econometrics

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