Cooperation in R&D: Patenting, Licensing, and Contracting

Bhattacharya, S, d'Aspremont, C, Guriev, SG, Sen, D and Tauman, Y (2013) Cooperation in R&D: Patenting, Licensing, and Contracting. In: Game Theory and Business Applications. Springer, Boston, pp. 265-286. ISBN 9781461470946

Abstract

Innovative activity uses anihd produces knowledge. This is both costly and risky and the resulting product has (at least partially) the main characteristics of a public good: it is non-rival and non-excludable. Without any sort of protection, individual agent would have little incentive to do research for fear of unsuccessful research effort or for fear of imitation by others (through spillovers or free access). In this chapter, we use game-theoretic concepts to analyze R&D collective arrangements in settings involving both complete and incomplete contracts. The first topic is patent protection and the comparison of the main forms of licensing in various industry contexts, structures or sizes – including the role of various factors such as product differentiation, innovation magnitude, and asymmetric information. The second focus is the long-debated relationship between innovative activity and the intensity of competition. Here, we review the benefits of various types of cooperative R&D agreements in the presence of externalities. The last two topics concern contracting issues. In a complete contracting setting, we review the design of licensing mechanisms allowing for full knowledge sharing under incomplete information. Finally, we consider incomplete contracts designed to deal with cumulative or sequential innovation and the associated moral hazard problems combining research and development efforts, and the possibility of several buyers for the innovation.