Imperfect patent protection, licensing, and willingness to pay for the innovation

  • Carlo CapuanoEmail author
  • Iacopo Grassi


This article analyzes the ways in which imperfect patent protection affects patent holders’ licensing decisions, firms’ willingness to pay for the innovation, and social welfare. We consider a cost-reducing innovation by either an incumbent or a (potential) entrant. According to our analysis, when patent protection is high enough, the entrant is willing to pay more compared with the incumbent, it licenses the innovation exclusively, and it acts as a non-practicing entity. In the case of low patent protection, the threat of imitation discourages licensing agreements, and consequently, the incumbent ends up investing more. Thus, the level of patent protection impacts the structure of the market, affecting R&D appropriability and social welfare.


Patents Licensing wtp npe Welfare 

JEL Classification

L12 L13 D45 



We thank two anonymous referees and an Associate Editor for constructive criticisms. We have also benefited from useful discussions with Riccardo Martina. The authors acknowledge the participants and discussants at the following conferences, where a previous version of this paper was presented: EALE 2019 (Tel Aviv), EARIE 2019 (Barcelona), SIEPI 2019 (Roma), and CIED 2018 (Bari). Any remaining errors are ours.


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Copyright information

© Associazione Amici di Economia e Politica Industriale 2019

Authors and Affiliations

  1. 1.Department of Economics and Statistics (DISES)University of Naples Federico IINaplesItaly
  2. 2.Department of Political Science (DISP)University of Naples Federico IINaplesItaly

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