Two-dimensional effort in patent-race games and rent-seeking contests: The case of telephony

Abstract

Using the political-economic history of the development of telephony during the 1870s as a backdrop, this paper studies a two-player Tullock contest that includes both research effort (R&D) and legal effort (i.e., rent-seeking effort). The two types of efforts complement each other and positively influence the payoff of the contest. We assume that legal effort affects the prize value, increasing the winner's prospective rents, and research effort impacts the probability of winning the contest. The results of the model break new ground in showing that research effort is a function of legal effort, wherein research effort increases with rent-seeking effort. The model also shows the existence of a strategic equivalence between rent seeking and patent races. © 2014 by the authors; licensee MDPI, Basel, Switzerland.