Scherer, F.M. "First Mover Advantages and Optimal Patent Protection." Journal of Technology Transfer 40.4 (August 2015): 559-580.
This paper examines the economic logic underlying so-called “first mover advantages” as alternatives to patent protection in allowing innovators protection from immediate imitation and time to recoup their research and development investments. These include a head start, lower costs due to learning by doing, and product-differentiating reputational advantages. William Nordhaus’ theory of optimal patent protection is extended to cases of product, as distinguished from cost-saving, innovation. Over the parameters covered by a simulation analysis, profit potentials sufficient to induce R&D investment are found much more frequently than R&D incentive failures. R&D failures occur most commonly in small markets and situations in which imitators’ erosion of the innovator’s market share is particularly rapid. Implications for patent policy are drawn.