Title

(When) Do stronger patents increase continual innovation?

Document Type

Journal article

Source Publication

Journal of Economic Behavior & Organization

Publication Date

2-1-2014

Volume

98

First Page

115

Last Page

124

Keywords

Continual innovation, Patent strength, Patents, Profit division, Profit expansion

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.

DOI

10.1016/j.jebo.2013.12.005

Print ISSN

01672681

Publisher Statement

Copyright © 2013 Elsevier B.V.

Access to external full text or publisher's version may require subscription.

Full-text Version

Publisher’s Version

Recommended Citation

Chen, Y., Pan, S., & Zhang, T. (2014). (When) Do stronger patents increase continual innovation? Journal of Economic Behavior & Organization, 98, 115-124. doi: 10.1016/j.jebo.2013.12.005