Patent Races with Secrecy

Firms do not always patent their innovations. Instead, they often rely on secrecy to appropriate the returns of innovations. This paper endogenizes firms' patent propensity, and shows that when the equilibrium patent propensity is small, strengthening patent protection can decrease firms'...

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Bibliographic Details
Published in:The Journal of industrial economics 2012-09, Vol.60 (3), p.499-516
Main Author: Kwon, Illoong
Format: Article
Language:English
Subjects:
Economic incentives
Economics
Industrial economics
Industrial innovations
Industry
Innovations
Investment policy
Legal protection
Modeling
Paradoxes
Patent applications
Patent law
Patent policy
Product innovation
Publishing industry
Return on investment
Secrecy
Studies
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Description
Summary:Firms do not always patent their innovations. Instead, they often rely on secrecy to appropriate the returns of innovations. This paper endogenizes firms' patent propensity, and shows that when the equilibrium patent propensity is small, strengthening patent protection can decrease firms' incentive to innovate. Paradoxically, this result holds precisely when a stronger patent policy induces more patent applications. Also, these results can arise even in the simplest patent race model with independent innovations as well as with complementary innovations.
ISSN:0022-1821
1467-6451
DOI:10.1111/j.1467-6451.2012.00482.x