Intellectual Property Rights and Efficient Firm Organization
AbstractI provide a justification of intellectual property rights as a source of static efficiency gains in manufacturing, rather than dynamic benefits from greater innovation. I develop a property-rights model of a supply relationship with two dimensions of non-contractible investment. In equilibrium, the first best is attained if and only if ownership of tangible and intangible assets is equally protected. If IP rights are weaker, the organization of the firm is distorted and efficiency declines: the final producer must either integrate her suppliers, which prompts a decline in their investment; or else risk their defection, which entails a waste of her expertise. My model predicts a greater prevalence of vertically integrated manufacturers where IP rights are weaker, and a switch from integration to outsourcing over the product cycle. Empirical evidence on the international supply chains of multinational companies bears out both predictions. As a normative implication, I find that IP rights should be strong but narrowly defined, to protect a business without holding up its potential spin-offs.
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Bibliographic InfoPaper provided by Barcelona Graduate School of Economics in its series Working Papers with number 668.
Date of creation: Jun 2013
Date of revision:
intellectual property; organization; hold-up problem; property rights; vertical integration; outsourcing; product cycle; spin-off; licensing;
Other versions of this item:
- Giacomo A. M. Ponzetto, 2008. "Intellectual property rights and efficient firm organization," Economics Working Papers 1254, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 2013.
- Ponzetto, Giacomo AM, 2012. "Intellectual Property Rights and Efficient Firm Organization," CEPR Discussion Papers 9212, C.E.P.R. Discussion Papers.
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
- K11 - Law and Economics - - Basic Areas of Law - - - Property Law
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
- L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
- O34 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-11-24 (All new papers)
- NEP-BEC-2012-11-24 (Business Economics)
- NEP-COM-2012-11-24 (Industrial Competition)
- NEP-ENT-2012-11-24 (Entrepreneurship)
- NEP-INO-2012-11-24 (Innovation)
- NEP-IPR-2012-11-24 (Intellectual Property Rights)
- NEP-KNM-2012-11-24 (Knowledge Management & Knowledge Economy)
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