This paper analyzes the effect of forward patent protection in a two-stage
race when innovation is sequential. Free entry is allowed in each stage. A firm
which is successful in innovation in the first stage competes with new firms in
the second stage. Under three patent regimes, this paper derives to compare
the equilibrium level of R&D investment not only by the industry level, but by
the firm level. The ST regime (Satckelberg competition) entails higher social
welfare than the other patent regimes. This result supports the strong forward
protection for the first-generation innovator as Green and Scotchmer(1995).