On the Social Desirability of Patents for Sequential Innovations in a Vertically Differentiated Market

We consider a market for vertically differentiated goods where firms enter\r\nover time, after having developed innovations characterised by different\r\nquality levels. We show that patent height and length interact to determine the\r\nultimate emergence of duopoly. In general, imposing quality improvements on\r\nlater entrants entails the persistence of monopoly, while a duopoly equilibrium\r\nemerges when the second innovator is allowed to produce a sufficiently\r\ninferior quality and the patent protection granted to the first innovator is not\r\ntoo long-lasting.