Cooperation in R and D - The Case of Patent Infringement Agreements

This paper is an attempt to provide a strategic rationale behind patent infringement agreements (PIA). We interpret such agreements as yet another form of cooperation in a non-cooperative environment. If the infringement probability is not 'too' low, firms would have incentive to sign a PIA sacrificing the right to punish the offender. In a simple Cournot-Nash model with linear demand, we show that the infringement probability as low as near 1/5 could induce PIA.