Runner-up patents: is monopoly inevitable?

Abstract : Exclusive patents sacrifice product competition to provide firms incentives to innovate. We characterize an alternative mechanism whereby later inventors are allowed to share the patent if they discover within a certain time period of the first inventor. These runner-up patents increase social welfare under very general conditions. Furthermore, we show that the time window during which later inventors can share the patent should become a new policy tool at the disposal of the designer. This instrument will be used in a socially optimal mix with the breadth and length of the patent and could allow sorting between more or less efficient firms.