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Sleeping Patents and Computsory Licensing: An Options Analysis

  • Weeds, H.

Why should a firm wish to create a new technology that it will leave unexploited for some time? Sleeping patents have long been perceived as anticompetitive devices, used by dominant firms to block entry into their market. In a real options framework with both economic and technological uncertainty, we show that a sleeping patent may arise as the result of optimal forward-looking behavior, in the absence of any anticompetitive motive. We also consider the effect of possible measures to enforce the development of sleeping patents and find that these are likely to harm incentives for firms to engage in research.

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File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2008/twerp577.pdf
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Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 577.

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Length: 32 pages
Date of creation: 1999
Date of revision:
Handle: RePEc:wrk:warwec:577
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Web page: http://www2.warwick.ac.uk/fac/soc/economics/

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  1. Pindyck, Robert S., 1993. "Investments of uncertain cost," Journal of Financial Economics, Elsevier, vol. 34(1), pages 53-76, August.
  2. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, volume 1, number 5474, April.
  3. McDonald, Robert & Siegel, Daniel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 707-27, November.
  4. Bar-Ilan, Avner & Strange, William C., 1998. "A model of sequential investment," Journal of Economic Dynamics and Control, Elsevier, vol. 22(3), pages 437-463, March.
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