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Entry and Patenting in the Software Industry

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  • 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. 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, December.
  2. 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.
  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. George S Olley & Ariel Pakes, 1992. "The Dynamics Of Productivity In The Telecommunications Equipment Industry," Working Papers 92-2, Center for Economic Studies, U.S. Census Bureau.
  5. Bresnahan, Timothy F & Reiss, Peter C, 1991. "Entry and Competition in Concentrated Markets," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 977-1009, October.
  6. Wooldridge, J.M., 1990. "Distribution-Free Estimation Of Some Nonlinear Panel Data Models," Working papers 564, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Josh Lerner, 2002. "150 Years of Patent Protection," American Economic Review, American Economic Association, vol. 92(2), pages 221-225, May.
  8. James Bessen & Robert M. Hunt, 2004. "An empirical look at software patents," Working Papers 03-17, Federal Reserve Bank of Philadelphia.
  9. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
  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. Bronwyn H. Hall, 2004. "Exploring the Patent Explosion," NBER Working Papers 10605, National Bureau of Economic Research, Inc.
  12. 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.
  13. Bronwyn H. Hall & Megan MacGarvie, 2006. "The Private Value of Software Patents," NBER Working Papers 12195, National Bureau of Economic Research, Inc.
  14. 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.
  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. A. Jorge Padilla & Damien Geradin & Anne Layne-Farrar, 2007. "Royalty Stacking In High Tech Industries: Separating Myth From Reality," Working Papers wp2007_0701, CEMFI.
  2. Bronwyn H. Hall & Megan MacGarvie, 2006. "The Private Value of Software Patents," NBER Working Papers 12195, National Bureau of Economic Research, Inc.
  3. 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.
  4. 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.
  5. Gerard Llobet & Javier Suarez, 2010. "Entrepreneurial Innovation, Patent Protection And Industry Dynamics," Working Papers wp2010_1001, CEMFI.
  6. Dietmar Harhoff & Georg von Graevenitz & Stefan Wagner, 2014. "Conflict Resolution, Public Goods and Patent Thickets," Working Papers 49, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
  7. 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.
  8. James Bessen, 2010. "Communicating Technical Knowledge," Working Papers 1001, Research on Innovation.
  9. 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.
  10. Iain M. Cockburn & Megan MacGarvie, 2007. "Patents, Thickets, and the Financing of Early-Stage Firms: Evidence from the Software Industry," NBER Working Papers 13644, National Bureau of Economic Research, Inc.
  11. Javier Suarez & Gerard Llobet, 2008. "Financially Constrained Innovation, Patent Protection, and Industry Dynamics," 2008 Meeting Papers 102, Society for Economic Dynamics.
  12. 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.
  13. Alexy, Oliver & Reitzig, Markus, 2013. "Private–collective innovation, competition, and firms’ counterintuitive appropriation strategies," Research Policy, Elsevier, vol. 42(4), pages 895-913.

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