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Adverse Effects of Patent Pooling on Product Development and Commercialization

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  • Jeitschko Thomas D.

    ()
    (Department of Economics, Michigan State University, East Lansing, MI 48824, USA)

  • Zhang Nanyun

    ()
    (Independent Project Analysis, Inc., Ashburn, VA 20147, USA)

Abstract

The conventional wisdom is that the formation of patent pools is welfare enhancing when patents are complementary, since the pool avoids a double-marginalization problem associated with independent licensing. This conventional wisdom relies on the effects that pooling has on downstream prices. However, it does not account for the potentially significant role of the effect of pooling on downstream product development and commercialization. We consider development technologies that entail spillovers between rivals and assume that final-demand products are imperfect substitutes. When pool formation facilitates information sharing and spillovers in development, then decreases in the degree of product differentiation can adversely affect welfare by reducing the incentives towards product development and product market competition – even with perfectly complementary patents. The analysis modifies and even negates the conventional wisdom for some settings and suggests why patent pools are uncommon in science-based industries such as biotech and pharmaceuticals that are characterized by tacit knowledge and incomplete patents.

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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Theoretical Economics.

Volume (Year): 14 (2014)
Issue (Month): 1 (January)
Pages: 31

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Handle: RePEc:bpj:bejtec:v:14:y:2014:i:1:p:31:n:4

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  1. Ghosh, Arghya & Morita, Hodaka, 2012. "Competitor collaboration and product distinctiveness," International Journal of Industrial Organization, Elsevier, vol. 30(2), pages 137-152.
  2. Bourreau, Marc & Dogan, Pinar, 2010. "Cooperation in Product Development and Process R&D Between Competitors," Scholarly Articles 4863170, Harvard Kennedy School of Government.
  3. Nisvan Erkal & Deborah Minehart, 2008. "Optimal Sharing Strategies in Dynamic Games of Research and Development," EAG Discussions Papers 200806, Department of Justice, Antitrust Division.
  4. Sung-Hwan Kim, 2004. "Vertical Structure and Patent Pools," Review of Industrial Organization, Springer, vol. 25(3), pages 231-250, 07.
  5. María José Gil Moltó & Nikolaos Georgantzís & Vicente Orts, 2005. "Cooperative R&D with Endogenous Technology Differentiation," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(2), pages 461-476, 06.
  6. Gastón Llanes & Stefano Trento, 2010. "Patent Policy, Patent Pools, And The Accumulation Of Claims In Sequential Innovation," UFAE and IAE Working Papers 856.10, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  7. Choi, Jay Pil, 2009. "Patent Pools and Cross-Licensing in the Shadow of Patent Litigation," PIE/CIS Discussion Paper 417, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
  8. Patrick Gaulé, 2006. "Towards Patent Pools in Biotechnology?," CEMI Working Papers cemi-report-2006-010, Ecole Polytechnique Fédérale de Lausanne, Collège du Management de la Technologie, Management of Technology and Entrepreneurship Institute, Chaire en Economie et Management de l'Innovation.
  9. Ryan L. Lampe & Petra Moser, 2009. "Do Patent Pools Encourage Innovation? Evidence from the 19th-Century Sewing Machine Industry," NBER Working Papers 15061, National Bureau of Economic Research, Inc.
  10. Dequiedt, Vianney & Versaevel, Bruno, 2013. "Patent pools and dynamic R&D incentives," International Review of Law and Economics, Elsevier, vol. 36(C), pages 59-69.
  11. Steffen Brenner, 2009. "Optimal formation rules for patent pools," Economic Theory, Springer, vol. 40(3), pages 373-388, September.
  12. Ryan L. Lampe & Petra Moser, 2012. "Do Patent Pools Encourage Innovation? Evidence from 20 U.S. Industries under the New Deal," NBER Working Papers 18316, National Bureau of Economic Research, Inc.
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Cited by:
  1. Dequiedt, Vianney & Versaevel, Bruno, 2013. "Patent pools and dynamic R&D incentives," International Review of Law and Economics, Elsevier, vol. 36(C), pages 59-69.
  2. Jeitschko, Thomas D. & Jung, Yeonjei & Kim, Jaesoo, 2014. "Bundling and joint marketing by rival firms," DICE Discussion Papers 144, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  3. Ryan L. Lampe & Petra Moser, 2012. "Do Patent Pools Encourage Innovation? Evidence from 20 U.S. Industries under the New Deal," NBER Working Papers 18316, National Bureau of Economic Research, Inc.

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