Patents, Imitation and Licensing in an Asymmetric Dynamic R&D Race

The paper uses a simple two-firm asymmetric ability multistage R&D race model to analyse the effect of different types of patent policy regimes and licensing arrangement on the speed of innovation, firm value and consumers surplus. The paper demonstrates the circumstances under which a weak patent protection regime, which facilitates free imitation of any intermediate technology, may yield a higher overall surplus than a regime that awards patent for the final innovation.