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    Effect on R&D Expense as Patent Life Changes

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    Do you think the overall level of R&D would increase or decrease over the next 20 to 30 years if the lengths of new patents were extended from 20 years to, say "forever"? What if the duration was reduced from 20 years, to say, 3 years? Which situation would create more monopoly power in the market?

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    If the overall length of patents were increased from 20 years to forever, the level of R&D expense would increase. This is because the expected cash flows from successful inventions and patents would near infinity and would, as a result, render additional R&D expense more beneficial. In other words, firms would expect more total profit over the life of the patent and would ...

    Solution Summary

    The solution describes the effects on total R&D expense with changing patent life.