Pool of Basic Patents and Follow-up Innovations

Basic innovations are often fundamental to the development of applications that maybe developed by other innovators. In this setting, we investigate whether patent pools canrectify the lack of incentives for developers to invest in applications. Following Green andScotchmer (1995), we also wonder whether broad basic patents are necessary to provideenough incentives for basic innovators. We show that patent pools are more likely to beformed with patents of very different breadth, or patents of similarly wide breadth. Further,even though patent pools rectify the problem of developers’ incentives, they may reduce theincentive for doing basic research.[...]