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Are Patents Strategic Barriers to Entry?

  • Langinier, Corinne

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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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 11482.

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Date of creation: 01 Sep 2004
Date of revision:
Publication status: Published in Journal of Economics and Business, September/October 2004, vol. 56 no. 5, pp. 349-361
Handle: RePEc:isu:genres:11482
Contact details of provider: Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
Web page: http://www.econ.iastate.edu
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  1. Mukesh Eswaran & Nancy Gallini, 1996. "Patent Policy and the Direction of Technological Change," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 722-746, Winter.
  2. Paul Milgrom & John Roberts, 1998. "Limit Pricing and Entry Under Incomplete Information: An Equilibrium Analysis," Levine's Working Paper Archive 245, David K. Levine.
  3. Suzanne Scotchmer & Jerry Green, 1990. "Novelty and Disclosure in Patent Law," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 131-146, Spring.
  4. Kortum, Samuel & Lerner, Josh, 1999. "What is behind the recent surge in patenting?1," Research Policy, Elsevier, vol. 28(1), pages 1-22, January.
  5. Crampes, Claude & Langinier, Corinne, 2000. "Information Disclosure in the Renewal of Patents," Staff General Research Papers 10461, Iowa State University, Department of Economics.
  6. Henry Grabowski, 2003. "Patents, Innovation and Access to New Pharmaceuticals," Levine's Working Paper Archive 618897000000000656, David K. Levine.
  7. Klemperer, Paul, 1990. "How Broad Should the Scope of Patent Protection Be?," CEPR Discussion Papers 392, C.E.P.R. Discussion Papers.
  8. Richard Gilbert & Carl Shapiro, 1990. "Optimal Patent Length and Breadth," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 106-112, Spring.
  9. Horstmann, Ignatius & MacDonald, Glenn M & Slivinski, Alan, 1985. "Patents as Information Transfer Mechanisms: To Patent or (Maybe) Not to Patent," Journal of Political Economy, University of Chicago Press, vol. 93(5), pages 837-58, October.
  10. Bester, H. & Petrakis, E., 1991. "The Incentives for Cost Reduction in a Differentiated Industry," Discussion Paper 1991-36, Tilburg University, Center for Economic Research.
  11. van Dijk, Theon, 1996. "Patent Height and Competition in Product Improvements," Journal of Industrial Economics, Wiley Blackwell, vol. 44(2), pages 151-67, June.
  12. Grabowski, Henry, 2002. "Patents, Innovation and Access to New Pharmaceuticals," Working Papers 02-28, Duke University, Department of Economics.
  13. In-Koo Cho & David M. Kreps, 1997. "Signaling Games and Stable Equilibria," Levine's Working Paper Archive 896, David K. Levine.
  14. Henry Grabowski, 2002. "Patents, Innovation and Access to New Pharmaceuticals," Journal of International Economic Law, Oxford University Press, vol. 5(4), pages 849-860, December.
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