Market Outcomes and Dynamic Patent Buyouts / Alberto Galasso, Matthew Mitchell, Gabor Virag.

Format:

Book

Author/Creator:

Galasso, Alberto.

Contributor:

National Bureau of Economic Research.

Mitchell, Matthew.

Virag, Gabor.

Series:

Working Paper Series (National Bureau of Economic Research) no. w20197.

NBER working paper series no. w20197

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2014.

Summary:

Patents are a useful but imperfect reward for innovation. In sectors like pharmaceuticals, where monopoly distortions seem particularly severe, there is growing international political pressure to identify alternatives to patents that could lower prices. Innovation prizes and other non-patent rewards are becoming more prevalent in government's innovation policy, and are also widely implemented by private philanthropists. In this paper we develop a model in which a patent buyout is effective, using information from market outcomes as a guide to the payment amount. We allow for the fact that sales may be manipulable by the innovator in search of the buyout payment, and show that in a wide variety of cases the optimal policy in our model still involves some form of patent buyout. The buyout uses two key pieces of information: market outcomes observed during the patent's life, and the competitive outcome after the patent is bought out. We show that such dynamic market information can be effective at determining both marginal and total willingness to pay of consumers in many important cases, and therefore can generate the right innovation incentives in our model.

Notes:

Print version record

June 2014.