Patents, Thickets, and the Financing of Early-Stage Firms: Evidence from the Software Industry
AbstractThe impact of stronger intellectual property rights in the software industry is controversial. One means by which patents can affect technical change, industry dynamics, and ultimately welfare, is through their role in stimulating or stifling entry by new ventures. Patents can block entry, or raise entrants' costs in variety of ways, while at the same time they may stimulate entry by improving the bargaining position of entrants vis-à-vis incumbents, and supporting a "market for technology" which enables new ventures to license their way into the market, or realize value through trade in their intangible assets. One important impact of patents may be their influence on capital markets, and here we find evidence that the extraordinary growth in patenting of software during the 1990s is associated with significant effects on the financing of software companies. Start-up software companies operating in markets characterized by denser patent thickets see their initial acquisition of VC funding delayed relative to firms in markets less affected by patents. The relationship between patents and the probability of IPO or acquisition is more complex, but there is some evidence that firms without patents are less likely to go public if they operate in a market characterized by patent thickets.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13644.
Date of creation: Nov 2007
Date of revision:
Publication status: published as William J. Baumol, Melissa A. Schilling, Edward N. Wolff. "The Superstar Inventors and Entrepreneurs: How Were They Educated?," in Thomas Hellman and Scott Stern, editors, "Entrepreneurship: Strategy and Structure" Journal of Economics and Management Strategy 18(3), Fall 2009 (Blackwell Publishing) (2009)
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- Iain M. Cockburn & Megan J. MacGarvie, 2009. "Patents, Thickets and the Financing of Early-Stage Firms: Evidence from the Software Industry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(3), pages 729-773, 09.
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
- 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-2007-12-01 (All new papers)
- NEP-COM-2007-12-01 (Industrial Competition)
- NEP-ENT-2007-12-01 (Entrepreneurship)
- NEP-INO-2007-12-01 (Innovation)
- NEP-IPR-2007-12-01 (Intellectual Property Rights)
- NEP-MIC-2007-12-01 (Microeconomics)
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.:
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