Are patents strategic barriers to entry?
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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