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When Do More Patents Reduce R&D?

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  • Robert M. Hunt

Abstract

This paper develops a simple duopoly model in which investments in R&D and patents are inputs in the production of firm rents. Patents are necessary to appropriate the returns to the firm’s own R&D, but patents also create potential claims against the rents of rival firms. Analysis of the model reveals a general necessary condition for the existence of a positive correlation between the firm’s R&D intensity and the number of patents it obtains. When that condition is violated, changes in exogenous parameters that induce an increase in firms’ patenting can also induce a decline in R&D intensity. Such a negative relationship is more likely when (1) there is sufficient overlap in firms’ technologies so that each firm’s inventions are likely to infringe the patents of another firm, (2) firms are sufficiently R&D intensive, and (3) patents are cheap relative to both the cost of R&D and the value of final output.

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 96 (2006)
Issue (Month): 2 (May)
Pages: 87-91

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Handle: RePEc:aea:aecrev:v:96:y:2006:i:2:p:87-91

Note: DOI: 10.1257/000282806777212035
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References

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  1. Richard Gilbert and Carl Shapiro., 1989. "Optimal Patent Length and Breadth," Economics Working Papers 89-102, University of California at Berkeley.
  2. Klemperer, Paul, 1990. "How Broad Should the Scope of Patent Protection Be?," CEPR Discussion Papers 392, C.E.P.R. Discussion Papers.
  3. Shapiro, Carl, 2000. "Navigating the Patent Thicket: Cross Licenses, Patent Pools, and Standard-Setting," Competition Policy Center, Working Paper Series qt4hs5s9wk, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  4. Wesley M Cohen & Richard R Nelson & John P Walsh, 2003. "Protecting Their Intellectual Assets: Appropriability Conditions and Why U.S. Manufacturing Firms Patent (Or Not)," Levine's Working Paper Archive 618897000000000624, David K. Levine.
  5. Robert M. Hunt, 2006. "When do more patents reduce R&D?," Working Papers 06-6, Federal Reserve Bank of Philadelphia.
  6. Bronwyn Hall, 2004. "Exploring the patent explosion," ESRC Centre for Business Research - Working Papers wp291, ESRC Centre for Business Research.
  7. James Bessen & Robert M Hunt, 2004. "An Empirical Look at Software Patents," Levine's Working Paper Archive 122247000000000167, David K. Levine.
  8. Shapiro, Carl, 2001. "Antitrust Limits to Patent Settlements," Competition Policy Center, Working Paper Series qt87s5j911, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  9. Robert M. Hunt, 1999. "Nonobviousness and the incentive to innovate: an economic analysis of intellectual property reform," Working Papers 99-3, Federal Reserve Bank of Philadelphia.
  10. Joseph Farrell & Carl Shapiro, 2008. "How Strong Are Weak Patents?," American Economic Review, American Economic Association, vol. 98(4), pages 1347-69, September.
  11. Reinganum, Jennifer F, 1985. "Innovation and Industry Evolution," The Quarterly Journal of Economics, MIT Press, vol. 100(1), pages 81-99, February.
  12. Jay Pil Choi, 2003. "Pools and Cross-Licensing in the Shadow of Patent Litigation," CESifo Working Paper Series 1070, CESifo Group Munich.
  13. Robert M. Hunt, 2002. "Patentability, industry structure, and innovation," Working Papers 01-13, Federal Reserve Bank of Philadelphia.
  14. Lee, Tom & Wilde, Louis L, 1980. "Market Structure and Innovation: A Reformulation," The Quarterly Journal of Economics, MIT Press, vol. 94(2), pages 429-36, March.
  15. Adam B. Jaffe & Josh Lerner & Scott Stern, 2007. "Innovation Policy and the Economy, Volume 7," NBER Books, National Bureau of Economic Research, Inc, number jaff07-1, octubre-d.
  16. James Bessen, 2004. "Patent Thickets: Strategic Patenting of Complex Technologies," Working Papers 0401, Research on Innovation.
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Citations

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Cited by:
  1. Robert M. Hunt, 2006. "When Do More Patents Reduce R&D?," American Economic Review, American Economic Association, vol. 96(2), pages 87-91, May.
  2. Guido Cozzi & Silvia Galli, 2009. "Science-Based R&D In Schumpeterian Growth," Scottish Journal of Political Economy, Scottish Economic Society, vol. 56(s1), pages 474-491, 09.
  3. Alexandre Almeida & Aurora A.C. Teixeira, 2007. "Does Patenting negatively impact on R&D investment?An international panel data assessment," FEP Working Papers 255, Universidade do Porto, Faculdade de Economia do Porto.
  4. Iain Clacher,, 2010. "National accounting for intangible assets in the knowledge economy," Journal of Financial Regulation and Compliance, Emerald Group Publishing, vol. 18(2), pages 106-119, May.
  5. Guido Cozzi & Silvia Galli, 2009. "Upstream Innovation Protection: Common Law Evolution and the Dynamics of Wage Inequality," Working Papers 2009_20, Business School - Economics, University of Glasgow.
  6. Gaétan de Rassenfosse & Bruno Van Pottelsberghe, 2010. "The Role of Fees in Patent Systems: Theory and Evidence," Working Papers ECARES ECARES 2010-023, ULB -- Universite Libre de Bruxelles.
  7. Banerjee, Dyuti & Chatterjee, Ishita, 2010. "The impact of piracy on innovation in the presence of technological and market uncertainty," Information Economics and Policy, Elsevier, vol. 22(4), pages 391-397, December.
  8. Robert M. Hunt, 2007. "Economics and the design of patent systems," Working Papers 07-6, Federal Reserve Bank of Philadelphia.
  9. Che, XiaoGang & Yang, Yibai & Zhang, Haoyu, 2010. "Outsourcing and R&D Investment with Costly Patent Protection," MPRA Paper 25516, University Library of Munich, Germany.
  10. Alexandre Almeida & Aurora A.C. Teixeira, 2008. "One size does not fit all… An economic development perspective on the asymmetric impact of Patents on R&D," FEP Working Papers 292, Universidade do Porto, Faculdade de Economia do Porto.
  11. Arijit Mukherjee, 2013. "Patent protection under endogenous product differentiation," Discussion Paper Series 2013_06, Department of Economics, Loughborough University, revised Jul 2013.

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