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Using patent citation patterns to infer innovation market competition

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  • Patel, Darshak
  • Ward, Michael R.

Abstract

We propose an empirical strategy to estimate competition in innovation markets. Our method relates firms' market return on equity to information about patent citation patterns. Two innovations are implemented in the methodology. First is the application of daily abnormal stock returns rather than annual measures of Tobin's q. Second is the creation of citation patterns related to the area of science a firm patents in as represented by the detailed patent classification system. We find that markets positively reward firms when patents are granted. We further find that firm's market value increases when its patent portfolio is cited. We find evidence of competition in innovation markets. The market reacts at the time that the citation occurs and does not anticipate future citations at the time of patenting. Holding this effect constant, we find that citations from patents in the same area of science tend to reduce market value. We interpret these findings as consistent with more citations indicating more valuable intellectual property but citations from competing technologies decreasing it.

Suggested Citation

  • Patel, Darshak & Ward, Michael R., 2011. "Using patent citation patterns to infer innovation market competition," Research Policy, Elsevier, vol. 40(6), pages 886-894, July.
  • Handle: RePEc:eee:respol:v:40:y:2011:i:6:p:886-894
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    References listed on IDEAS

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    1. Bronwyn H. Hall & Adam B. Jaffe & Manuel Trajtenberg, 2000. "Market Value and Patent Citations: A First Look," NBER Working Papers 7741, National Bureau of Economic Research, Inc.
    2. Marco, Alan C., 2007. "The dynamics of patent citations," Economics Letters, Elsevier, vol. 94(2), pages 290-296, February.
    3. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    4. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    5. Jürgen Bitzer, 2005. "Measuring Knowledge Stocks: A Process of Creative Destruction," Kyklos, Wiley Blackwell, vol. 58(3), pages 379-393, July.
    6. Yi Deng, 2005. "The value of knowledge spillovers," Working Paper Series 2005-14, Federal Reserve Bank of San Francisco.
    7. McGahan, Anita M. & Silverman, Brian S., 2006. "Profiting from technological innovation by others: The effect of competitor patenting on firm value," Research Policy, Elsevier, vol. 35(8), pages 1222-1242, October.
    8. Jean O. Lanjouw & Mark Schankerman, 2004. "Patent Quality and Research Productivity: Measuring Innovation with Multiple Indicators," Economic Journal, Royal Economic Society, vol. 114(495), pages 441-465, April.
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    Cited by:

    1. repec:kap:jtecht:v:42:y:2017:i:6:d:10.1007_s10961-016-9515-2 is not listed on IDEAS
    2. repec:spr:scient:v:111:y:2017:i:2:d:10.1007_s11192-017-2324-z is not listed on IDEAS
    3. Darren Filson, Saman Olfati, Fatos Radoniqi, . "Evaluating Mergers in the Presence of Dynamic Competition Using Impacts on Rivals," Journal of Law and Economics, University of Chicago Press, vol. 58(4).
    4. Venturini, Francesco, 2012. "Looking into the black box of Schumpeterian growth theories: An empirical assessment of R&D races," European Economic Review, Elsevier, vol. 56(8), pages 1530-1545.
    5. repec:kap:jtecht:v:43:y:2018:i:1:d:10.1007_s10961-017-9564-1 is not listed on IDEAS
    6. Frietsch, Rainer & Neuhäusler, Peter & Michels, Carolin & Dornbusch, Friedrich, 2014. "Medical research at universities – An international comparison," Studien zum deutschen Innovationssystem 8-2014, Expertenkommission Forschung und Innovation (EFI) - Commission of Experts for Research and Innovation, Berlin.
    7. repec:spr:scient:v:100:y:2014:i:2:d:10.1007_s11192-014-1303-x is not listed on IDEAS

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