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Are Patents Strategic Barriers to Entry?

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  • Langinier, Corinne

Abstract

Patent protection restricts entry rather than preventing it. In case of a process innovation, it forces a potential entrant to sufficiently differentiate his production technology. We investigate whether a patentholder threatened by entry can strategically renew her patent. For low demand, the patent renewal is sufficient to deter entry, whereas a high demand attracts competitor, even if there is a patent. On the other hand, the renewal decision can signal information to an uninformed entrant whenever the patentholder is informed. This may act as a barrier to entry. Thus, a patent is renewed more frequently in presence of asymmetric information.

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Bibliographic Info

Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 11482.

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Date of creation: 01 Sep 2004
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Publication status: Published in Journal of Economics and Business, September/October 2004, vol. 56 no. 5, pp. 349-361
Handle: RePEc:isu:genres:11482

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
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Web page: http://www.econ.iastate.edu
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References

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  1. Bester, H. & Petrakis, E., 1991. "The Incentives for Cost Reduction in a Differentiated Industry," Papers 9136, Tilburg - Center for Economic Research.
  2. Richard Gilbert & Carl Shapiro, 1990. "Optimal Patent Length and Breadth," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 106-112, Spring.
  3. Mukesh Eswaran & Nancy Gallini, 1996. "Patent Policy and the Direction of Technological Change," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 722-746, Winter.
  4. van Dijk, Theon, 1996. "Patent Height and Competition in Product Improvements," Journal of Industrial Economics, Wiley Blackwell, vol. 44(2), pages 151-67, June.
  5. Claude CRAMPES & Corinne LANGINIER, 1998. "Information Disclosure in the REnewal of Patent," Annales d'Economie et de Statistique, ENSAE, issue 49-50, pages 265-288.
  6. Grabowski, Henry, 2002. "Patents, Innovation and Access to New Pharmaceuticals," Working Papers 02-28, Duke University, Department of Economics.
  7. Klemperer, Paul, 1990. "How Broad Should the Scope of Patent Protection Be?," CEPR Discussion Papers 392, C.E.P.R. Discussion Papers.
  8. 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.
  9. In-Koo Cho & David M. Kreps, 1997. "Signaling Games and Stable Equilibria," Levine's Working Paper Archive 896, David K. Levine.
  10. Paul Milgrom & John Roberts, 1998. "Limit Pricing and Entry Under Incomplete Information: An Equilibrium Analysis," Levine's Working Paper Archive 245, David K. Levine.
  11. Henry Grabowski, 2002. "Patents, Innovation and Access to New Pharmaceuticals," Journal of International Economic Law, Oxford University Press, vol. 5(4), pages 849-860, December.
  12. Kortum, Samuel & Lerner, Josh, 1999. "What is behind the recent surge in patenting?1," Research Policy, Elsevier, vol. 28(1), pages 1-22, January.
  13. Henry Grabowski, 2003. "Patents, Innovation and Access to New Pharmaceuticals," Levine's Working Paper Archive 618897000000000656, David K. Levine.
  14. Horstmann, Ignatius & MacDonald, Glenn M & Slivinski, Alan, 1985. "Patents as Information Transfer Mechanisms: To Patent or (Maybe) Not to Patent," Journal of Political Economy, University of Chicago Press, vol. 93(5), pages 837-58, October.
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Cited by:
  1. Jinyoung Kim, 2010. "Patent Portfolio Management of Sequential Innovations," Discussion Paper Series 1005, Institute of Economic Research, Korea University.
  2. Kurt R. Brekke & Odd Rune Straume, 2008. "Pharmaceutical Patents: Incentives for R&D or Marketing?," CESifo Working Paper Series 2433, CESifo Group Munich.

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