The paper by James Bessen and Eric Maskin explores the relationship between sequential innovation, patents, and imitation in industries such as software, semiconductors, and computers. The authors argue that these industries have historically experienced rapid innovation despite weak patent protection, suggesting that imitation can actually promote innovation. They present a dynamic model where innovation is both sequential and complementary, meaning that each new invention builds on previous ones and different firms take different research paths, enhancing the overall probability of achieving a goal. In this context, strong patents can inhibit innovation by limiting competition and the exchange of ideas, which are crucial for sequential and complementary innovation. The authors use a natural experiment from the 1980s when patent protection for software was significantly strengthened to test their model. They find that this change did not lead to increased R&D spending or productivity, contrary to what standard arguments would predict. Instead, they observe a pattern of cross-licensing in these industries, where firms license their patents to competitors, and a positive correlation between innovation rates and firm entry. These findings support the dynamic model, suggesting that competition and imitation can enhance innovation in industries with sequential and complementary innovation.The paper by James Bessen and Eric Maskin explores the relationship between sequential innovation, patents, and imitation in industries such as software, semiconductors, and computers. The authors argue that these industries have historically experienced rapid innovation despite weak patent protection, suggesting that imitation can actually promote innovation. They present a dynamic model where innovation is both sequential and complementary, meaning that each new invention builds on previous ones and different firms take different research paths, enhancing the overall probability of achieving a goal. In this context, strong patents can inhibit innovation by limiting competition and the exchange of ideas, which are crucial for sequential and complementary innovation. The authors use a natural experiment from the 1980s when patent protection for software was significantly strengthened to test their model. They find that this change did not lead to increased R&D spending or productivity, contrary to what standard arguments would predict. Instead, they observe a pattern of cross-licensing in these industries, where firms license their patents to competitors, and a positive correlation between innovation rates and firm entry. These findings support the dynamic model, suggesting that competition and imitation can enhance innovation in industries with sequential and complementary innovation.