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Entry and Patenting in the Software Industry

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Author Info

  • Iain M. Cockburn

    ()
    (Boston University, Boston, Massachusetts 02215; and National Bureau of Economic Research, Cambridge, Massachusetts 02138)

  • Megan J. MacGarvie

    ()
    (Boston University, Boston, Massachusetts 02215; and National Bureau of Economic Research, Cambridge, Massachusetts 02138)

Abstract

To what extent are firms kept out of a market by patents covering related technologies? Do patents held by potential entrants make it easier to enter markets? We estimate the empirical relationship between market entry and patents for 27 narrowly defined categories of software products during the period 1990-2004. Controlling for demand, market structure, average patent quality, and other factors, we find that a 10% increase in the number of patents relevant to market reduces the rate of entry by 3%-8%, and this relationship intensified following expansions in the patentability of software in the mid-1990s. However, potential entrants with patent applications relevant to a market are more likely to enter it. Finally, patents appear to substitute for complementary assets in the entry process, because patents have both greater entry-deterring and entry-promoting effects for firms without prior experience in other markets. This paper was accepted by Bruno Cassiman, business strategy.

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File URL: http://dx.doi.org/10.1287/mnsc.1110.1321
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Bibliographic Info

Article provided by INFORMS in its journal Management Science.

Volume (Year): 57 (2011)
Issue (Month): 5 (May)
Pages: 915-933

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Handle: RePEc:inm:ormnsc:v:57:y:2011:i:5:p:915-933

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Keywords: innovation; intellectual property rights; software patents; entry;

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References

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  1. Wooldridge, J.M., 1990. "Distribution-Free Estimation Of Some Nonlinear Panel Data Models," Working papers 564, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. James Bessen & Robert M. Hunt, 2007. "An Empirical Look at Software Patents," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 16(1), pages 157-189, 03.
  3. Lanjouw, Jean O. & Cockburn, Iain M., 2001. "New Pills for Poor People? Empirical Evidence after GATT," World Development, Elsevier, vol. 29(2), pages 265-289, February.
  4. Josh Lerner, 2000. "150 Years of Patent Protection," NBER Working Papers 7478, National Bureau of Economic Research, Inc.
  5. Bronwyn H. Hall, 2005. "Exploring the Patent Explosion," The Journal of Technology Transfer, Springer, vol. 30(2_2), pages 35-48, 01.
  6. Carl Shapiro, 2004. "Navigating the Patent Thicket: Cross Licenses, Patent Pools and Standard Setting," Levine's Working Paper Archive 122247000000000539, David K. Levine.
  7. Hall, Bronwyn H. & MacGarvie, Megan, 2010. "The private value of software patents," Research Policy, Elsevier, vol. 39(7), pages 994-1009, September.
  8. Douglas Staiger & James H. Stock, 1994. "Instrumental Variables Regression with Weak Instruments," NBER Technical Working Papers 0151, National Bureau of Economic Research, Inc.
  9. G. Steven Olley & Ariel Pakes, 1992. "The Dynamics of Productivity in the Telecommunications Equipment Industry," NBER Working Papers 3977, National Bureau of Economic Research, Inc.
  10. Prusa, Thomas J. & Schmitz, James Jr., 1991. "Are new firms an important source of innovation? : Evidence from the PC software industry," Economics Letters, Elsevier, vol. 35(3), pages 339-342, March.
  11. Sault, Joanne & Toivanen, Otto & Waterson, Michael, 2003. "Market Structure And Entry In Fast Food," The Warwick Economics Research Paper Series (TWERPS) 661, University of Warwick, Department of Economics.
  12. Josh Lerner & Feng Zhu, 2005. "What is the Impact of Software Patent Shifts?: Evidence from Lotus v. Borland," NBER Working Papers 11168, National Bureau of Economic Research, Inc.
  13. Bresnahan, T.F & Reiss, P.C., 1989. "Entry And Competition In Concentrated Markets," Papers 151, Stanford - Studies in Industry Economics.
  14. Adam B. Jaffe & Josh Lerner & Scott Stern, 2001. "Innovation Policy and the Economy, Volume 1," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262600412.
  15. Prusa, Thomas J & Schmitz, James A, Jr, 1994. "Can Companies Maintain Their Initial Innovation Thrust? A Study of the PC Software Industry," The Review of Economics and Statistics, MIT Press, vol. 76(3), pages 523-40, August.
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Citations

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Cited by:
  1. Hall, Bronwyn H. & MacGarvie, Megan, 2010. "The private value of software patents," Research Policy, Elsevier, vol. 39(7), pages 994-1009, September.
  2. Javier Suarez & Gerard Llobet, 2008. "Financially Constrained Innovation, Patent Protection, and Industry Dynamics," 2008 Meeting Papers 102, Society for Economic Dynamics.
  3. Iain M. Cockburn & Megan J. MacGarvie, 2009. "Patents, Thickets and the Financing of Early-Stage Firms: Evidence from the Software Industry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(3), pages 729-773, 09.
  4. Gerard Llobet & Javier Suarez, 2010. "Entrepreneurial Innovation, Patent Protection And Industry Dynamics," Working Papers wp2010_1001, CEMFI.
  5. A. Jorge Padilla & Damien Geradin & Anne Layne-Farrar, 2007. "Royalty Stacking In High Tech Industries: Separating Myth From Reality," Working Papers wp2007_0701, CEMFI.
  6. Mueller, Elisabeth & Cockburn, Iain M. & MacGarvie, Megan, 2013. "Access to intellectual property for innovation: Evidence on problems and coping strategies from German firms," Research Policy, Elsevier, vol. 42(2), pages 529-541.
  7. Dietmar Harhoff & Georg von Graevenitz & Stefan Wagner, 2012. "Conflict resolution, public goods and patent thickets," ESMT Research Working Papers ESMT-12-04 (R1), ESMT European School of Management and Technology, revised 25 Mar 2013.
  8. Alexy, Oliver & Reitzig, Markus, 2013. "Private–collective innovation, competition, and firms’ counterintuitive appropriation strategies," Research Policy, Elsevier, vol. 42(4), pages 895-913.
  9. James E. Bessen, 2010. "Communicating Technical Knowledge," Levine's Working Paper Archive 661465000000000308, David K. Levine.
  10. Schwiebacher, Franz, 2013. "Does fragmented or heterogeneous IP ownership stifle investments in innovation?," ZEW Discussion Papers 13-096, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  11. David S. Abrams & Ufuk Akcigit & Jillian Popadak, 2013. "Patent Value and Citations: Creative Destruction or Strategic Disruption?," PIER Working Paper Archive 13-065, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  12. Wen Wen & Marco Ceccagnoli & Chris Forman, 2013. "Patent Commons, Thickets, and Open Source Software Entry by Start-Up Firms," NBER Working Papers 19394, National Bureau of Economic Research, Inc.
  13. Timo Fischer & Gaétan de Rassenfosse, 2011. "Debt Financing of High-growth Startups," DRUID Working Papers 11-04, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.

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