Economic Conditions Created by the Grant of a Patent $ Quantity

Economic Conditions Created by the Grant of a Patent $ Quantity Marginal Cost

Economic Conditions Created by the Grant of a Patent $ Quantity Marginal Cost A X

Economic Conditions Created by the Grant of a Patent $ Quantity B Y Marginal Cost A X

Economic Conditions Created by the Grant of a Patent $ Quantity B Y Marginal Cost A X C Z

Economic Conditions Created by the Grant of a Patent $ Quantity B Y Marginal Cost Demand Aggregate Consumer Demand A X C Z

Economic Conditions Created by the Grant of a Patent $ Quantity Marginal Cost Demand Aggregate Consumer Demand

Economic Conditions Created by the Grant of a Patent $ Quantity Marginal Cost Demand In the absence of patent, copying and competition will drive the price down close to marginal cost

Economic Conditions Created by the Grant of a Patent $ Quantity Marginal Cost Demand In the absence of patent, copying and competition will drive the price down close to marginal cost

Economic Conditions Created by the Grant of a Patent $ Quantity Marginal Cost Demand Q In the absence of patent, copying and competition will drive the price down close to marginal cost

Economic Conditions Created by the Grant of a Patent $ Quantity Marginal Cost Demand In the absence of patent, copying and competition will drive the price down close to marginal cost Resultant Consumer Surplus Q

Economic Conditions Created by the Grant of a Patent $ Quantity Marginal Cost Demand In the absence of patent, copying and competition will drive the price down close to marginal cost Resultant Consumer Surplus Q No incentive to innovate

$ Quantity Demand Marginal Cost

Figure 1: Profit-Maximizing Behavior by a Patentee $ Quantity Demand Marginal Cost

Figure 1: Profit-Maximizing Behavior by a Patentee $ Quantity Demand Marginal Cost In the absence of Price Discrimination

Figure 1: Profit-Maximizing Behavior by a Patentee $ Quantity Demand C G H Marginal Cost O A I In the absence of Price Discrimination

Figure 1: Profit-Maximizing Behavior by a Patentee $ Quantity Demand C G H Marginal Cost Marginal Revenue O A I In the absence of Price Discrimination

Figure 1: Profit-Maximizing Behavior by a Patentee $ Quantity Demand B C D E F G H Marginal Cost Marginal Revenue O A I In the absence of Price Discrimination

Figure 1: Profit-Maximizing Behavior by a Patentee $ Quantity Demand B C D E F G H Marginal Cost Profit-maximizing output Profit-maximizing price Marginal Revenue O A I In the absence of Price Discrimination

Figure 1: Profit-Maximizing Behavior by a Patentee $ Quantity Demand B C D E F G H Marginal Cost Profit-maximizing output Profit-maximizing price Monopoly Profits Marginal Revenue O A I 1 In the absence of Price Discrimination

Figure 2: Economic Effects of Profit-Maximizing Behavior by a Patentee $ Quantity Demand B C D E F G H Marginal Cost Profit-maximizing output Profit-maximizing price Monopoly Profits O A I 1 2 Consumer Surplus

Figure 2: Economic Effects of Profit-Maximizing Behavior by a Patentee $ Quantity Demand B C D E F G H Marginal Cost Profit-maximizing output Profit-maximizing price Monopoly Profits O A I Consumer Surplus Deadweight Loss (foregone consumer surplus) E

Incentive Theory as Applied to Foreign Patents If country A grants patents to nationals of country B, The various benefits stimulated by the resultant incentive to innovate are realized primarily by the residents of country B While the deadweight losses and other efficiency losses are suffered exclusively by the residents of country A (unless, perhaps, patentees can be required to “work” their inventions in country A)