(When) Do Stronger Patents Increase Continual Innovation?
AbstractUnder continual innovation, greater patent strength expands innovating firms’ profit against imitation, but also shifts profit from current to past innovators. We show how the impact of patents on innovation, as determined by these two opposing effects, varies with industry characteristics. When the discount factor is sufficiently high, the negative profit division effect is negligible, and innovation monotonically increases in patent strength; otherwise, innovation has an inverted-U relationship with patent strength, and stronger patents are more likely to increase innovation when the discount factor or the fixed innovation cost is higher. We also show how the impact of patents on innovation may change with firms’ innovation capability and with the intensity of competition from imitators.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 40874.
Date of creation: 25 Aug 2012
Date of revision:
Continual innovation; patents; patent strength; profit expansion; profit division;
Other versions of this item:
- Chen, Yongmin & Pan, Shiyuan & Zhang, Tianle, 2014. "(When) Do stronger patents increase continual innovation?," Journal of Economic Behavior & Organization, Elsevier, vol. 98(C), pages 115-124.
- O3 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-09-03 (All new papers)
- NEP-INO-2012-09-03 (Innovation)
- NEP-IPR-2012-09-03 (Intellectual Property Rights)
- NEP-SBM-2012-09-03 (Small Business Management)
- NEP-TID-2012-09-03 (Technology & Industrial Dynamics)
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