Fragmented property rights, R & D and market structure

Abstract

Fragmented property rights can be a factor that limits firms’ willingness to invest in the development and commercialization of new products. This paper studies the interaction between markets for products and markets for intellectual property rights (patents) where product innovation requires several complementary patents, each of which is obtained as the result of a patent race. We show that the multiple patent product involves an important hold-up problem and we consider which market structure optimally balances the various incentives that emerge in such a system.