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Little Firms and Big Patents: A Model of Small-Firm Patent Signaling

  • Wolfgang Gick
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    "Patent strategies of small technology-intensive firms are difficult to explain with standard incentive arguments based on intellectual property rights. This paper develops a rationale for patent filing as a disclosure strategy. We develop a two-sender signaling game to study patenting incentives of two technology start-ups to file in a large-scale patent system with the goal to attract a user firm. Both start-ups may decide to invest in costly modification of their patent application before filing. The paper identifies a separating equilibrium in which the high-quality inventor files and so separates from its technology competitor. Of particular interest is the study of pooling and semi-separating equilibria, as well as the impact of subsidies. We find that a higher quality of a country's inventions, reflected in the possible innovative steps and thus in higher expected profits for foreign user firms, may increase the chance of the relatively lower-quality inventor to enter international technology markets." Copyright (c) 2008, The Author(s) Journal Compilation (c) 2008 Wiley Periodicals, Inc..

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    Article provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.

    Volume (Year): 17 (2008)
    Issue (Month): 4 (December)
    Pages: 913-935

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    Handle: RePEc:bla:jemstr:v:17:y:2008:i:4:p:913-935
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