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Jostling for Advantage: Licensing and Entry into Patent Portfolio Races

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  • Siebert, Ralph
  • Graevenitz, Georg von

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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Bibliographic Info

Paper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 184.

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Date of creation: Sep 2006
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Handle: RePEc:trf:wpaper:184

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

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  1. 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, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University 105, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  2. Bronwyn Hall, 2004. "Exploring the patent explosion," ESRC Centre for Business Research - Working Papers, ESRC Centre for Business Research wp291, ESRC Centre for Business Research.
  3. Shapiro, Carl, 2000. "Navigating the Patent Thicket: Cross Licenses, Patent Pools, and Standard-Setting," Competition Policy Center, Working Paper Series, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley qt4hs5s9wk, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  4. Reinganum, Jennifer F., 1989. "The timing of innovation: Research, development, and diffusion," Handbook of Industrial Organization, Elsevier, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 14, pages 849-908 Elsevier.
  5. Katsoulacos, Yannis & Ulph, David, 1998. "Endogenous Spillovers and the Performance of Research Joint Ventures," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 46(3), pages 333-57, September.
  6. Johannes Hörner, 2004. "A Perpetual Race to Stay Ahead," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 71(4), pages 1064-1088, October.
  7. Loury, Glenn C, 1979. "Market Structure and Innovation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 93(3), pages 395-410, August.
  8. Anand, Bharat N & Khanna, Tarun, 2000. "The Structure of Licensing Contracts," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 48(1), pages 103-35, March.
  9. Beath, John & Katsoulacos, Yannis & Ulph, David, 1989. "Strategic R&D Policy," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 99(395), pages 74-83, Supplemen.
  10. Baye, Michael R. & Hoppe, Heidrun C., 2003. "The strategic equivalence of rent-seeking, innovation, and patent-race games," Games and Economic Behavior, Elsevier, Elsevier, vol. 44(2), pages 217-226, August.
  11. 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, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(1), pages 43-59, February.
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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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