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Entry and Patenting in the Software Industry

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  • Iain M. Cockburn
  • Megan J. MacGarvie

Abstract

To what extent are firms kept out of a market by patents covering related technologies? Do patents held by potential entrants make it easier to enter markets? We estimate the empirical relationship between market entry and patents for 27 narrowly defined categories of software products during the period 1990-2004. Controlling for demand, market structure, average patent quality, and other factors, we find that a 10% increase in the number of patents relevant to market reduces the rate of entry by 3-8%, and this relationship intensified following expansions in the patentability of software in the mid-1990s. However, potential entrants with patent applications relevant to a market are more likely to enter it. Finally, patents appear to substitute for complementary assets in the entry process, as patents have both greater entry-deterring and entry-promoting effects for firms without prior experience in other markets.

Suggested Citation

  • Iain M. Cockburn & Megan J. MacGarvie, 2006. "Entry and Patenting in the Software Industry," NBER Working Papers 12563, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:12563
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    References listed on IDEAS

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    Cited by:

    1. Gerard Llobet & Javier Suarez, 2010. "Entrepreneurial Innovation, Patent Protection and Industry Dynamics," Working Papers wp2010_1001, CEMFI.
    2. Peng Huang & Marco Ceccagnoli & Chris Forman & D.J. Wu, 2009. "Participation in a Platform Ecosystem: Appropriability, Competition, and Access to the Installed Base," Working Papers 09-14, NET Institute, revised Sep 2009.
    3. Wagner, S. & Cockburn, I., 2010. "Patents and the survival of Internet-related IPOs," Research Policy, Elsevier, vol. 39(2), pages 214-228, March.
    4. Susan Coleman & Carmen Cotei & Joseph Farhat, 2013. "A Resource-Based View Of New Firm Survival: New Perspectives On The Role Of Industry And Exit Route," Journal of Developmental Entrepreneurship (JDE), World Scientific Publishing Co. Pte. Ltd., vol. 18(01), pages 1-25.
    5. Iain M. Cockburn & Megan J. MacGarvie, 2009. "Patents, Thickets and the Financing of Early‐Stage Firms: Evidence from the Software Industry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(3), pages 729-773, September.
    6. James E. Bessen, 2010. "Communicating Technical Knowledge," Levine's Working Paper Archive 661465000000000308, David K. Levine.
    7. Hall, Bronwyn H. & MacGarvie, Megan, 2010. "The private value of software patents," Research Policy, Elsevier, vol. 39(7), pages 994-1009, September.
    8. Wen Wen & Marco Ceccagnoli & Chris Forman, 2016. "Opening Up Intellectual Property Strategy: Implications for Open Source Software Entry by Start-up Firms," Management Science, INFORMS, vol. 62(9), pages 2668-2691, September.
    9. Wen Wen & Marco Ceccagnoli & Chris Forman, 2013. "Patent Commons, Thickets, and Open Source Software Entry by Start-Up Firms," NBER Working Papers 19394, National Bureau of Economic Research, Inc.
    10. Wen Wen & Marco Ceccagnoli & Chris Forman, 2012. "Patent Pools, Thickets, and Open Source Software Entry by Start-Up Firms," NBER Chapters, in: Standards, Patents and Innovations, National Bureau of Economic Research, Inc.
    11. Kevin J. Boudreau, 2012. "Let a Thousand Flowers Bloom? An Early Look at Large Numbers of Software App Developers and Patterns of Innovation," Organization Science, INFORMS, vol. 23(5), pages 1409-1427, October.
    12. Fernández-López, Sara & Rodríguez-Gulías, María Jesús & Dios-Vicente, Adrián & Rodeiro-Pazos, David, 2020. "Individual and joint effect of patenting and exporting on the university spin-offs’ survival," Technology in Society, Elsevier, vol. 62(C).
    13. Bart Leten & Rene Belderbos & Bart Van Looy, 2016. "Entry and Technological Performance in New Technology Domains: Technological Opportunities, Technology Competition and Technological Relatedness," Journal of Management Studies, Wiley Blackwell, vol. 53(8), pages 1257-1291, December.
    14. Damien Geradin & Anne Layne-Farrar & A. Jorge Padilla, 2007. "Royalty Stacking in High Tech Industries: Separating Myth from Reality," Working Papers wp2007_0701, CEMFI.
    15. Greenstein, Shane, 2010. "Innovative Conduct in Computing and Internet Markets," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 1, chapter 0, pages 477-537, Elsevier.
    16. Javier Suarez & Gerard Llobet, 2008. "Financially Constrained Innovation, Patent Protection, and Industry Dynamics," 2008 Meeting Papers 102, Society for Economic Dynamics.

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    More about this item

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L6 - Industrial Organization - - Industry Studies: Manufacturing
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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