Question

Different governments grant patents for different numbers of years, although the general trend of the past decades has been to increase the breadth and depth of patent protection (so that patents not only cover genuine innovations but also some very obvious ‘ideas’). a How do you think country differences in patent protection affect the decisions of multinational corporations about where to conduct their research and development?
b Suppose governments everywhere reduced the number of years a patent lasts. What do you think would be the effect of this change on the incentive to do research and on the growth rate of GDP? Outline the various arguments.

Please type the answer not handwritting

Answer 1

a) Lets begin with taking a look from both side of giving a patent. One which favours the monopolist and the other favouring the consumer. Longer the patent period more will be the dead weight loss to the people of the economy. Especially when the demand is elastic. With a small change in price the demand can change in greater numbers, which lead to greater well fare loss.

From the firms perspective, longer the patent period, more money they make from the economy. It wont be wrong to say that they hold the monopoly power in the production of the goods of service in which they hold patent to. Longer patent would also mean that the idea is safe in the long run, meaning they wont have to face competition from any rivals. Their products can be sold in the product at higher price. They can even postpone investment research and development in the project since there is no competition form anyone.

So firms prefer longer prefer longer patent periods because it would give them enough time to recover their R&D cost.

b) Shorter patents makes people better off. As discussed earlier, shorter patent would mean less dead weight loss. Also shorter patents are better for dramatic ideas. Shorter patents would ensure a check on monopoly. Firms would have invest more on R&D. This would ensure that better technology would be introduced in the market in short time gaps. The market would become more competitive. More competition would mean that better priced products will be available in the market. More competition, more production, more jobs, better income, more demand and so on. All these would lead to better economic progress. When better technologies are introduced, higher will be the growth potential of the economy.

First promoter of the idea introduces the break through technology. Upon the expiration of the patent, the comptititors can improve on it.