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A Note on Patents and Leniency

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  • Adam Karbowski

Abstract

The purpose of this note is to investigate the relationship between patents and market collusion. Specifically, by using game theory tools, it is shown that patents can act as a leniency mechanism, i.e., they can enable firms to leave a cartel without the risk of retaliation. However, the socially beneficial role of patents is limited because the Bertrand competition itself breaks the collusion via the existence of a prisoner’s dilemma between sufficiently myopic market rivals. In the prisoner’s dilemma, two social tensions, fear and greed, make firms deviate from collusion. Patenting breaks the collusion, but at the social cost of a temporary patent monopoly in the product market.

Suggested Citation

  • Adam Karbowski, 2020. "A Note on Patents and Leniency," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 1, pages 97-108.
    • Handle: RePEc:sgh:gosnar:y:2020:i:1:p:97-108
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    More about this item

    Keywords

    patents; leniency; collusion; prisoner's dilemma;
    All these keywords.

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • P14 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Property Rights

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