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Innovation can disrupt and make entire communitiesInnovation sometimes reffered to as ‘ creative destruction’ highlighting the downsides of innovation. Most economies innovation looked at positively. A company that innovates has a competitive advantage; however after some time competition causes the innovation to diffuse. When diffusion is complete a new equilibrium is reached. This means that an innovation creates an disequilibrium and the innovator receives benefits as long as it persist, but competition can destroy these benefits quickly. ->legal intervention needed to enable innovation to occur. Transactions in information:-credibility-nonapproprability: cheap to sell and costly to produce. ->enables free riders. Information use is nonrivalrousInformation use is nonexcludable These public goods charcheteristics makes it difficult for private markets to produce info. 4 remedies:-subsidies-charitable contributions (donations)-trade secrets protection: NDA (non-disclosure agreements)-intellectual property law; patents, copyrights, trademarks, etc. B.Intellectual propertyOwning property: excluding others from using it. ->dyamic efficiency: price rewards the creator resulting in more innovations->proper intellectual property rights: innovator need not fear that innovation is used: static efficiencyIntellectual property rights create monopoly power. ->patens and copyrights are temporal legal monopolies with variation in breadth and duration. ->may result in overuse (and overpricing) and too low dissemination. ->leads to major trade tensions between developing world and developed world. ->intellectual property law in reality clashes with economic efficiency due to interest of elite companies. 1. patents: broad or narrow?->exclusive rights to inventions, in which the invention is for a new process, machine, manufacture or composition of matter;- must be non-obvious-must have practical utility-must be unknown to the public. Verspreiden niet toegestaan | Gedownload door Douwe Van Benschop ([email protected])lOMoARcPSD|669953
When granted, the patent is a 20-year legal monopoly on the use of the invention. Others who want to use the invention may purchase the right to do so->licensing: use the invention of thirth parties in exchange for payment such as royalties. Anyone not having a license or a patent may not use the invention and the patent-holder can go to court if he/she does use it. Patents create protection in duration and breadth;Duration:number of years between a patents registration and it’s expirationBreadth:how similar an invention can be without infringing the patent. What is the efficient breadth?-broad patents encourage fundamental research, narrow patents encourages development-> if the social value of investment on fundamental research exceeds the social value of investment on developing applications, then patens should be broadened. -> in law: doctrine of equivalents-> court rulings about how nearly equivalent two inventions must be before finding patent infringement. Patent protection should be broader for those with little stand-alone value and narrower for those with large-stand alone value. What is the efficient duration?-patents create monopolies: the optimal life of a patent is that which strikes the best balance between encouraging creativity and discouraging dissemination. -> MO=MK apllies!Much controversy on ideal breadth and duration of patents and what can be patented. -Unregulated market will generally undersupply information whereas in some markets it will be over-invested. -Some innovations create natural monopolies: no need for legal monopolies as well. ->this often takes place in networks: network effects (hub and spokes)