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Patentability, industry structure, and innovation

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Author Info
Robert M. Hunt

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Abstract

To qualify for a patent, an invention must be new, useful, and nonobvious. This paper presents a model of sequential innovation in which industry structure is endogenous and a standard of patentability determines the proportion of all inventions that qualify for protection. There is a unique patentability standard, or inventive step, that maximizes the rate of innovation by maximizing the number of firms engaged in R&D. Surprisingly, this standard is more stringent for industries disposed to innovate rapidly. If a single standard is applied to heterogeneous industries, it will encourage entry, and therefore innovation, in some industries while discouraging it in others. The model suggest a number of important implications for patent policy.

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Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 01-13.

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Date of creation: 2002
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Handle: RePEc:fip:fedpwp:01-13

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Related research
Keywords: Patents ; Industries;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Suzanne Scotchmer & Jerry Green, 1990. "Novelty and Disclosure in Patent Law," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 131-146, Spring. [Downloadable!] (restricted)
    Other versions:
  2. Saggi, Kamal, 2000. "Trade, foreign direct investment, and international technology transfer : a survey," Policy Research Working Paper Series 2349, The World Bank. [Downloadable!]
    Other versions:
  3. Robert M. Hunt, 1999. "Nonobviousness and the incentive to innovate: an economic analysis of intellectual property reform," Working Papers 99-3, Federal Reserve Bank of Philadelphia. [Downloadable!]
  4. Horowitz, Andrew W & Lai, Edwin L-C, 1996. "Patent Length and the Rate of Innovation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(4), pages 785-801, November.
  5. Jerry R. Green & Suzanne Scotchmer, 1995. "On the Division of Profit in Sequential Innovation," RAND Journal of Economics, The RAND Corporation, vol. 26(1), pages 20-33, Spring. [Downloadable!] (restricted)
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  6. B. Douglas Bernheim, 1984. "Strategic Deterrence of Sequential Entry into an Industry," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 1-11, Spring. [Downloadable!] (restricted)
  7. Saul Lach & Rafael Rob, 1996. "R&D, Investment, and Industry Dynamics," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 5(2), pages 217-249, 06. [Downloadable!] (restricted)
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  8. Lee, Tom & Wilde, Louis L, 1980. "Market Structure and Innovation: A Reformulation," The Quarterly Journal of Economics, MIT Press, vol. 94(2), pages 429-36, March. [Downloadable!] (restricted)
  9. Richard Gilbert & Carl Shapiro, 1990. "Optimal Patent Length and Breadth," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 106-112, Spring. [Downloadable!] (restricted)
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  10. Vincenzo Denicolò, 2000. "Two-Stage Patent Races and Patent Policy," RAND Journal of Economics, The RAND Corporation, vol. 31(3), pages 488-501, Autumn.
  11. Vincenzo Denicolò, 2000. "Two-Stage Patent Races and Patent Policy," RAND Journal of Economics, The RAND Corporation, vol. 31(3), pages 450-487, Autumn.
  12. Reinganum, Jennifer F, 1985. "Innovation and Industry Evolution," The Quarterly Journal of Economics, MIT Press, vol. 100(1), pages 81-99, February. [Downloadable!] (restricted)
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  13. Cohen, Wesley M. & Levin, Richard C., 1989. "Empirical studies of innovation and market structure," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 18, pages 1059-1107 Elsevier. [Downloadable!] (restricted)
  14. Loury, Glenn C, 1979. "Market Structure and Innovation," The Quarterly Journal of Economics, MIT Press, vol. 93(3), pages 395-410, August. [Downloadable!] (restricted)
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  15. James Bessen & Eric Maskin, 2006. "Sequential Innovation, Patents, and Imitation," Economics Working Papers 0025, Institute for Advanced Study, School of Social Science. [Downloadable!]
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  16. Ted O'Donoghue & Suzanne Scotchmer & Jacques-François Thisse, 1998. "Patent Breadth, Patent Life, and the Pace of Technological Progress," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 7(1), pages 1-32, 03. [Downloadable!] (restricted)
  17. Klemperer, Paul, 1990. "How Broad Should the Scope of Patent Protection Be?," CEPR Discussion Papers 392, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  18. Ted O'Donoghue, 1998. "A Patentability Requirement for Sequential Innovation," RAND Journal of Economics, The RAND Corporation, vol. 29(4), pages 654-679, Winter. [Downloadable!] (restricted)
  19. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-51, March. [Downloadable!] (restricted)
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  20. Scherer, F M, 1992. "Schumpeter and Plausible Capitalism," Journal of Economic Literature, American Economic Association, vol. 30(3), pages 1416-33, September. [Downloadable!] (restricted)
  21. Haller, H. & Chou, T., 1995. "The Division of Profit in Sequential Innovation Reconsidered," Papers 9564, Tilburg - Center for Economic Research.
  22. Suzanne Scotchmer, 1996. "Protecting Early Innovators: Should Second-Generation Products Be Patentable?," RAND Journal of Economics, The RAND Corporation, vol. 27(2), pages 322-331, Summer. [Downloadable!] (restricted)
  23. Partha Dasgupta & Joseph Stiglitz, 1980. "Uncertainty, Industrial Structure, and the Speed of R&D," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 1-28, Spring. [Downloadable!] (restricted)
  24. Kortum, Samuel & Lerner, Josh, 1999. "What is behind the recent surge in patenting?1," Research Policy, Elsevier, vol. 28(1), pages 1-22, January. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Robert M. Hunt, 2006. "When Do More Patents Reduce R&D?," Levine's Bibliography 122247000000001065, UCLA Department of Economics. [Downloadable!]
    Other versions:
  2. Robert M. Hunt, 2007. "Economics and the design of patent systems," Working Papers 07-6, Federal Reserve Bank of Philadelphia. [Downloadable!]
  3. James Bessen & Eric Maskin, 2006. "Sequential Innovation, Patents, and Imitation," Economics Working Papers 0025, Institute for Advanced Study, School of Social Science. [Downloadable!]
    Other versions:
  4. Moschini, GianCarlo & Yerokhin, Oleg, 2006. "Patents, Research Exemption, and the Incentive for Sequential Innovation," Staff General Research Papers 12598, Iowa State University, Department of Economics. [Downloadable!]
    Other versions:
  5. Fershtman, Chaim & Markovich, Sarit, 2006. "Patents, Imitation and Licensing in an Asymmetric Dynamic R&D Race," CEPR Discussion Papers 5481, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  6. Ilya Segal & Michael Whinston, 2005. "Antitrust in Innovative Industries," NBER Working Papers 11525, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Nisvan Erkal & Suzanne Scotchmer, 2008. "Scarcity of Ideas and Options to Invest in R&D," Department of Economics - Working Papers Series 1035, The University of Melbourne. [Downloadable!]
  8. Guido Cozzi & Silvia Galli, 2009. "Science-Based R&D in Schumpeterian Growth," Working Papers 2009_19, Department of Economics, University of Glasgow. [Downloadable!]
  9. Bernard Caillaud & Anne Duchêne, 2009. "Patent Office in innovation policy: Nobody's perfect," PSE Working Papers 2009-39, PSE (Ecole normale supérieure). [Downloadable!]
  10. Guido Cozzi & Silvia Galli, 2009. "Upstream Innovation Protection: Common Law Evolution and the Dynamics of Wage Inequality," Working Papers 2009_20, Department of Economics, University of Glasgow. [Downloadable!]
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