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Jostling for Advantage: Licensing and Entry into Patent Portfolio Races

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  • Siebert, Ralph
  • von Graevenitz, Georg

Abstract

Licensing in a patent thicket allows firms to either avoid or resolve hold-up. Firms’ R&D incentives depend on whether they license ex ante or ex post. We develop a model of a patent portfolio race, which allows for endogenous R&D efforts, to study firms’ choice between ex ante and ex post licensing. The model shows that firms’ relationships in product markets and technology space jointly determine the type of licensing contract chosen. In particular, product market competitors are more likely to avoid patent portfolio races, since the threat of hold-up increases. On the other hand, more valuable technologies are more likely to give rise to patent portfolio races. We also discuss the welfare implications of these results.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5753.

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Date of creation: Jul 2006
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Handle: RePEc:cpr:ceprdp:5753

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Keywords: hold-up problem; innovation; licensing; patent race; patent thicket; research joint ventures;

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References

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  1. Johannes Hörner, 2004. "A Perpetual Race to Stay Ahead," Review of Economic Studies, Wiley Blackwell, vol. 71(4), pages 1064-1088, October.
  2. Carl Shapiro, 2001. "Navigating the Patent Thicket: Cross Licenses, Patent Pools, and Standard Setting," NBER Chapters, in: Innovation Policy and the Economy, Volume 1, pages 119-150 National Bureau of Economic Research, Inc.
  3. Bronwyn H. Hall, 2005. "Exploring the Patent Explosion," The Journal of Technology Transfer, Springer, vol. 30(2_2), pages 35-48, 01.
  4. Nti, Kofi O, 1997. "Comparative Statics of Contests and Rent-Seeking Games," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(1), pages 43-59, February.
  5. Anand, Bharat N & Khanna, Tarun, 2000. "The Structure of Licensing Contracts," Journal of Industrial Economics, Wiley Blackwell, vol. 48(1), pages 103-35, March.
  6. Reinganum, Jennifer F., 1989. "The timing of innovation: Research, development, and diffusion," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 14, pages 849-908 Elsevier.
  7. Siebert, Ralph & Graevenitz, Georg von, 2006. "How Licensing Resolves Hold-Up: Evidence from a Dynamic Panel Data Model with Unobserved Heterogeneity," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 105, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  8. Glenn C. Loury, 1976. "Market Structure and Innovation," Discussion Papers 256, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. Baye, Michael R. & Hoppe, Heidrun C., 2003. "The strategic equivalence of rent-seeking, innovation, and patent-race games," Games and Economic Behavior, Elsevier, vol. 44(2), pages 217-226, August.
  10. Beath, John & Katsoulacos, Yannis & Ulph, David, 1989. "Strategic R&D Policy," Economic Journal, Royal Economic Society, vol. 99(395), pages 74-83, Supplemen.
  11. Katsoulacos, Yannis & Ulph, David, 1998. "Endogenous Spillovers and the Performance of Research Joint Ventures," Journal of Industrial Economics, Wiley Blackwell, vol. 46(3), pages 333-57, September.
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Cited by:
  1. Stefano Comino & Fabio Manenti & Antonio Nicolò, 2007. "Sequential innovations with unobservable follow-on investments," "Marco Fanno" Working Papers 0041, Dipartimento di Scienze Economiche "Marco Fanno".

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