On Competition and the Strategic Management of Intellectual Property in Oligopoly

Authors


  • I thank the coeditor, two anonymous referees, Michela Cella, Vincenzo Denicolò, Christoph Engel, Chiara Fumagalli, Andreas Glöckner, Georg von Graevenitz, Dietmar Harhoff, Massimo Motta, Andreas Nicklisch, Serge Pajak, Susanne Prantl, Jo Seldeslachts, Nicolas Serrano-Velarde, Stefano Trento, Achim Wambach, Philipp Weinschenk, Elmar Wolfstetter, and seminar participants at the Catholic University in Milan, Robert Schuman Centre for Advanced Studies (Florence), University of Bologna, HCER (Helsinki), University of Cologne, ParisTech, SFB/TR15 Seminar (Berlin), MPI (Bonn), University of St. Andrews, WHU (Vallendar), EARIE conference (Valencia), SFB/TR15 conference (Gummersbach), Zvi Griliches Summer School in the Economics of Innovation (Barcelona), EEA Congress (Barcelona), and International Conference on Competition Policy and Property Rights (Milan) for helpful comments. Thanks to Brian Cooper for careful proofreading. I am grateful for the support of the WZB (Berlin) and EUI (Florence), where part of the research for this paper was done. All errors are mine.

Abstract

An innovative firm with private information about its indivisible process innovation chooses strategically whether to apply for a patent with probabilistic validity or rely on secrecy. By doing so, the firm manages its rivals’ beliefs about the size of the innovation, and affects the incentives in the product market. A Cournot competitor tends to patent big innovations, and keep small innovations secret, while a Bertrand competitor adopts the reverse strategy. Increasing the number of firms gives a greater (smaller) patenting incentive for Cournot (Bertrand) competitors. Increasing the degree of product substitutability increases the incentives to patent the innovation.

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