Protecting early innovators: Should second-generation products be patentable?

Incentives to develop basic technologies are greater if the patentholder profits from applications or other second-generation products. Assuming that such products infringe the basic patent and that there is not much delay between the innovations, I argue that (i) patents on second-generation products are not necessary to encourage their development and (ii) the patentholder of the basic technology collects a larger share of the profit if applications or other second-generation products are not patentable.