Dyuti Banerjee (Monash University) on "R&D competition, product differentiation and enforcement against IPR violation"

In this paper we analyse public enforcement policies to counter IPR violation in an environment where there is R&D competition with asymmetric R&D efficiencies between two firms that is captured by a contest function framework. The IPR violation is in the form of users who may choose to make illegal copies for personal consumption. We show that when product differentiation is relatively large compared to the R&D efficiency then the optimal enforcement policy induces the patent winner to choose a price that allows both buying and copying. On the contrary when the R&D efficiency is relatively large compared to the degree of product differentiation, then it is optimal for the government to choose an enforcement policy that induces the patent winner to choose a price that deters copying. However, the threat of copying exists and as the copied product becomes closer to the legitimate one, the equilibrium price has to fall in order to deter copying.