Title

Patenting in the shadow of independent discoveries by rivals

Document Type

Journal article

Source Publication

International Journal of Industrial Organization

Publication Date

1-1-2012

Volume

30

Issue

1

First Page

41

Last Page

49

Keywords

Patenting decisions, Patents, Secrecy, Independent discoveries

Abstract

This paper studies the decision of whether to apply for a patent in a dynamic model in which firms innovate stochastically and independently. In the model, a firm can choose between patenting and maintaining secrecy to protect a successful innovation. I consider a legal environment characterized by imperfect patent protection and no prior user rights. Thus, patenting grants probabilistic protection, and secrecy is effectively maintained until rivals innovate. I show that (1) firms that innovate early are more inclined to choose secrecy, whereas firms that innovate late have a stronger tendency to patent; (2) the incentives to patent increase with the innovation arrival rate; and (3) an increase in the number of firms may cause patenting to occur earlier or later, depending on the strength of patent protection. The socially optimal level of patent protection, which balances the trade-off between the provision of patenting incentives and the avoidance of deadweight loss caused by a monopoly, is lower with a higher innovation arrival rate or a larger number of firms.

DOI

10.1016/j.ijindorg.2011.05.002

Print ISSN

01677187

Publisher Statement

Copyright © 2011 Elsevier B.V.

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Recommended Citation

Zhang, T. (2012). Patenting in the shadow of independent discoveries by rivals. International Journal of Industrial Organization, 30(1), 41-49. doi: 10.1016/j.ijindorg.2011.05.002