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1423class23 - 14.23 Government Regulation of Industry Class...

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14.23 Government Regulation of Industry Class 23: Regulation of Patents: The case of Pharmaceuticals 1 MIT & University of Cambridge
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Outline • The regulation of innovation •P atents • Incentives to innovate • Welfare analysis of patent protection • Pharmaceuticals and patent protection • 1984 Price Competition and Patent Protection Act 2
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Innovation R+D yields information - so regulation of invention is a form of regulation of information. Do we get the right amount of R+D? What is the right amount of R+D? • Public goods aspects of R+D expenditure = ? However in practice there are limits on the appropriability of others’ R+D. What are these? There are also limits on the extent to which there can be legal protection of inventions. (Mansfield). Why? 3
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Patents Allows ownership of monopoly right for 20 years from date of filing. After 20 years the information becomes free to use. • Patent is an exclusive right to one’s invention. • Patents are similar in effect to copyright: Patent applies to ‘any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof’ (US Patent Office). Copyright applies to ‘“original works of authorship,” including literary, dramatic, musical, artistic, and certain other intellectual works.’ (US Copyright Office). • Patent Office needs to be satisfied New, Useful and Non-Obvious. • If you have a patent you must enforce it through courts. • Holder of Patent may license others to use invention for royalties before patent life has expired. 4
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Incentives to innovate depend on the amount of profit an innovator expects to receive. • This can be shown to depend on market structure. • We look at 4 cases: – Minor invention in a competitive industry – Minor invention in a monopoly industry – Major invention in a competitive industry – Major invention in a monopoly industry • Minor invention is one where the price does not change. 5
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This note was uploaded on 11/18/2011 for the course ECON 14.23 taught by Professor Daronacemoglu during the Fall '09 term at MIT.

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1423class23 - 14.23 Government Regulation of Industry Class...

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