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Using patent citation patterns to infer innovation market competition

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  • Patel, Darshak
  • Ward, Michael R.

Abstract

We propose an empirical strategy to estimate competition in innovation markets. Our method relates firms' market return on equity to information about patent citation patterns. Two innovations are implemented in the methodology. First is the application of daily abnormal stock returns rather than annual measures of Tobin's q. Second is the creation of citation patterns related to the area of science a firm patents in as represented by the detailed patent classification system. We find that markets positively reward firms when patents are granted. We further find that firm's market value increases when its patent portfolio is cited. We find evidence of competition in innovation markets. The market reacts at the time that the citation occurs and does not anticipate future citations at the time of patenting. Holding this effect constant, we find that citations from patents in the same area of science tend to reduce market value. We interpret these findings as consistent with more citations indicating more valuable intellectual property but citations from competing technologies decreasing it.

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Bibliographic Info

Article provided by Elsevier in its journal Research Policy.

Volume (Year): 40 (2011)
Issue (Month): 6 (July)
Pages: 886-894

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Handle: RePEc:eee:respol:v:40:y:2011:i:6:p:886-894

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Web page: http://www.elsevier.com/locate/respol

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Keywords: Patent Competition Stock market return;

References

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  1. Marco, Alan C., 2007. "The dynamics of patent citations," Economics Letters, Elsevier, vol. 94(2), pages 290-296, February.
  2. J├╝rgen Bitzer, 2005. "Measuring Knowledge Stocks: A Process of Creative Destruction," Kyklos, Wiley Blackwell, vol. 58(3), pages 379-393, 07.
  3. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
  4. Bronwyn H. Hall & Adam B. Jaffe & Manuel Trajtenberg, 2000. "Market Value and Patent Citations: A First Look," NBER Working Papers 7741, National Bureau of Economic Research, Inc.
  5. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
  6. McGahan, Anita M. & Silverman, Brian S., 2006. "Profiting from technological innovation by others: The effect of competitor patenting on firm value," Research Policy, Elsevier, vol. 35(8), pages 1222-1242, October.
  7. Jean O. Lanjouw & Mark Schankerman, 2004. "Patent Quality and Research Productivity: Measuring Innovation with Multiple Indicators," Economic Journal, Royal Economic Society, vol. 114(495), pages 441-465, 04.
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Cited by:
  1. Francesco Venturini, 2011. "Looking into the black box of Schumpeterian Growth Theories: an empirical assessment of R&D races," Quaderni del Dipartimento di Economia, Finanza e Statistica 94/2011, Università di Perugia, Dipartimento Economia, Finanza e Statistica.

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