November 29, 2017
Patents and Pools in Pyramidal Innovation Structures
Hodaya Lampert, Ben Gurion University of the Negev
We study sequential innovation in two pyramidal structures. In both structures patent pools are socially desirable. In an expanding pyramid, patent pools are stable and when allowed the largest pool possible will be formed. In a shrinking pyramid, patent pools are not stable when following a standard formation process. We offer a more elaborate formation protocol that allows for the creation and stability of the largest pool possible. We also examine the welfare implications of patent protection in both structures. We show that in the regular pyramid, as the pyramid expands, patent protection increases the likelihood of innovation, while in the inverse pyramid structure patent protection always decreases the likelihood of innovation.