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(When) Do Stronger Patents Increase Continual Innovation?

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  • Chen, Yongmin
  • Pan, Shiyuan
  • Zhang, Tianle

Abstract

Under continual innovation, greater patent strength expands innovating firms’ profit against imitation, but also shifts profit from current to past innovators. We show how the impact of patents on innovation, as determined by these two opposing effects, varies with industry characteristics. When the discount factor is sufficiently high, the negative profit division effect is negligible, and innovation monotonically increases in patent strength; otherwise, innovation has an inverted-U relationship with patent strength, and stronger patents are more likely to increase innovation when the discount factor or the fixed innovation cost is higher. We also show how the impact of patents on innovation may change with firms’ innovation capability and with the intensity of competition from imitators.

Suggested Citation

  • Chen, Yongmin & Pan, Shiyuan & Zhang, Tianle, 2012. "(When) Do Stronger Patents Increase Continual Innovation?," MPRA Paper 40874, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:40874
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    Cited by:

    1. Yongmin Chen & Shiyuan Pan & Tianle Zhang, 2018. "Patentability, R&D Direction, And Cumulative Innovation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 59(4), pages 1969-1993, November.
    2. Auriol, Emmanuelle & Biancini, Sara & Paillacar, Rodrigo, 2019. "Universal intellectual property rights: Too much of a good thing?," International Journal of Industrial Organization, Elsevier, vol. 65(C), pages 51-81.
    3. Yang Liu & Yaojun Fan & Yifan Wang & Jiayu Huang & Hu Xun, 2024. "City innovation ability and internet infrastructure development: Evidence from the “Broadband China” policy," Bulletin of Economic Research, Wiley Blackwell, vol. 76(1), pages 121-146, January.
    4. Nemlioglu, Ilayda & Mallick, Sushanta, 2021. "Effective innovation via better management of firms: The role of leverage in times of crisis," Research Policy, Elsevier, vol. 50(7).
    5. Yang, Qi-Cheng & Zheng, Mingbo & Chang, Chun-Ping, 2022. "Energy policy and green innovation: A quantile investigation into renewable energy," Renewable Energy, Elsevier, vol. 189(C), pages 1166-1175.
    6. Marjit, Sugata & Yang, Lei, 2015. "Does intellectual property right promote innovations when pirates are innovators?," International Review of Economics & Finance, Elsevier, vol. 37(C), pages 203-207.
    7. Nemlioglu, Ilayda & Mallick, Sushanta K., 2020. "Do innovation-intensive firms mitigate their valuation uncertainty during bad times?," Journal of Economic Behavior & Organization, Elsevier, vol. 177(C), pages 913-940.
    8. Krasteva, Silvana & Sharma, Priyanka & Wang, Chu, 2020. "Patent policy, imitation incentives, and the rate of cumulative innovation," Journal of Economic Behavior & Organization, Elsevier, vol. 178(C), pages 509-533.

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    More about this item

    Keywords

    Continual innovation; patents; patent strength; profit expansion; profit division;
    All these keywords.

    JEL classification:

    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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