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When Do More Patents Reduce R&D?

  • Robert M. Hunt

This paper develops a simple duopoly model in which investments in R&D and patents are inputs in the production of firm rents. Patents are necessary to appropriate the returns to the firm’s own R&D, but patents also create potential claims against the rents of rival firms. Analysis of the model reveals a general necessary condition for the existence of a positive correlation between the firm’s R&D intensity and the number of patents it obtains. When that condition is violated, changes in exogenous parameters that induce an increase in firms’ patenting can also induce a decline in R&D intensity. Such a negative relationship is more likely when (1) there is sufficient overlap in firms’ technologies so that each firm’s inventions are likely to infringe the patents of another firm, (2) firms are sufficiently R&D intensive, and (3) patents are cheap relative to both the cost of R&D and the value of final output.

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Paper provided by UCLA Department of Economics in its series Levine's Bibliography with number 122247000000001065.

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Date of creation: 24 Jan 2006
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Handle: RePEc:cla:levrem:122247000000001065
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  1. Shapiro, Carl, 2003. " Antitrust Limits to Patent Settlements," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 391-411, Summer.
  2. Wesley M Cohen & Richard R Nelson & John P Walsh, 2003. "Protecting Their Intellectual Assets: Appropriability Conditions and Why U.S. Manufacturing Firms Patent (Or Not)," Levine's Working Paper Archive 618897000000000624, David K. Levine.
  3. Reinganum, Jennifer F, 1985. "Innovation and Industry Evolution," The Quarterly Journal of Economics, MIT Press, vol. 100(1), pages 81-99, February.
  4. Richard Gilbert & Carl Shapiro, 1990. "Optimal Patent Length and Breadth," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 106-112, Spring.
  5. Robert M. Hunt, 2002. "Patentability, industry structure, and innovation," Working Papers 01-13, Federal Reserve Bank of Philadelphia.
  6. Rosemarie Ham Ziedonis, 2004. "Don't Fence Me In: Fragmented Markets for Technology and the Patent Acquisition Strategies of Firms," Management Science, INFORMS, vol. 50(6), pages 804-820, June.
  7. Robert M. Hunt, 2006. "When do more patents reduce R&D?," Working Papers 06-6, Federal Reserve Bank of Philadelphia.
  8. Bronwyn H. Hall, 2005. "Exploring the Patent Explosion," The Journal of Technology Transfer, Springer, vol. 30(2_2), pages 35-48, 01.
  9. Lee, Tom & Wilde, Louis L, 1980. "Market Structure and Innovation: A Reformulation," The Quarterly Journal of Economics, MIT Press, vol. 94(2), pages 429-36, March.
  10. Paul Klemperer, 1990. "How Broad Should the Scope of Patent Protection Be?," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 113-130, Spring.
  11. Shapiro, Carl, 2000. "Navigating the Patent Thicket: Cross Licenses, Patent Pools, and Standard-Setting," Competition Policy Center, Working Paper Series qt4hs5s9wk, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  12. James Bessen & Robert M Hunt, 2004. "An Empirical Look at Software Patents," Levine's Working Paper Archive 122247000000000167, David K. Levine.
  13. Jay Pil Choi, 2003. "Pools and Cross-Licensing in the Shadow of Patent Litigation," CESifo Working Paper Series 1070, CESifo Group Munich.
  14. Robert M. Hunt, 1999. "Nonobviousness and the incentive to innovate: an economic analysis of intellectual property reform," Working Papers 99-3, Federal Reserve Bank of Philadelphia.
  15. Joseph Farrell & Carl Shapiro, 2008. "How Strong Are Weak Patents?," American Economic Review, American Economic Association, vol. 98(4), pages 1347-69, September.
  16. Adam B. Jaffe & Josh Lerner & Scott Stern, 2007. "Innovation Policy and the Economy, Volume 7," NBER Books, National Bureau of Economic Research, Inc, number jaff07-1, May.
  17. James Bessen, 2004. "Patent Thickets: Strategic Patenting of Complex Technologies," Working Papers 0401, Research on Innovation.
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