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A model of duopolistic patent contest with private provisions of industry collective goods

This paper studies a duopolistic patent race model where the contestants are competing in a patent race and at the same time, they are both providing an industry collective good for enhancement of the prize of the patent race. The model finds out that innovation effort peaks when the contestants have equal research and development cost efficiency. Furthermore, greater returns to scale in innovation increase innovation efforts when contestants are about equal in their innovation cost efficiency and decrease innovation efforts when contestants are very unequal in their innovation cost efficiency. Finally, the paper finds out that an increase in the supply of the industry collective good by the other contestant induces a contestant to put in a higher innovation effort. The paper suggests that public policy should aim to promote equal innovation cost efficiency between leading research and development entities to maximise innovation efforts.