Publish or Perish

The race model has been the darling of patent economists and game theorists. This model assumes that the winner, namely the first to invent, takes the patent grant with the market dominance that comes with it, whereas the second comer, in the best tradition of sports contests, obligingly accepts her loss and quietly vanishes from the scene. While the sports analogy has provided a useful framework for understanding the economics of invention, it has obfuscated an important aspect of the inventive process: the possibility of strategic publication of research findings in order to prevent the issuance of a patent to a competitor. Captured by the sports analogy, patent scholars have consistently presupposed that the loser of a patent race must behave in a sportsmanlike fashion and gracefully accept her fate. But there is no reason whatsoever why competition in the inventive field should conform to the rules of sports. The stakes and payoff matrices of patent races are considerably different from those of sports contests, and, thus, it is only natural to expect firms in a patent race to deviate from the norms of fair competition in sports. The nature of patent races is much more complex than that of other races. Ceding a patent to a competitor may often spell a substantial drop in revenues for the losing firm, and in some cases may even drive the loser out of the market. Therefore, trying to win the race may not always be the profit-maximizing strategy. Rather, in many patent races the superior strategy for one or more of the competing firms would be to prevent other firms from winning the race by publishing their research findings. Recharacterizing patent races in this way implies that firms that are about to lose in a patent race often face a dilemma all too familiar to academics, the choice of publish or perish

License expenditures of incumbents and potential entrants : an empirical analysis of firm behavior.

This paper presents the results of an empirical test concerning the auction model of Gilbert and Newbery (1982). The study uses data on German companies in order to analyze expenditures for technology licenses. Aside of standard control variables the motives for innovation expenditures are also taken into account. We differentiate between firms which intend to secure their present position in the market (incumbents) and those intending to enter a new market (challengers). In line with the prediction of the auction model, it turns out that incumbents show higher expenditures for technology licenses than potential entrants.Behavior; Companies; Data; Firms; Incumbant versus entrant; Innovation;

License Expenditures of Incumbents and Potential Entrants: An Empirical Analysis of Firm Behavior

This paper presents the results of an empirical test concerning the auction model of Gilbert and Newbery (1982). The study uses data on German companies in order to analyze expenditures for technology licenses. Aside of standard control variables the motives for innovation expenditures are also taken into account. We differentiate between firms which intend to secure their present position in the market (incumbents) and those intending to enter a new market (challengers). In line with the prediction of the auction model, it turns out that incumbents show higher expenditures for technology licenses than potential entrants. --Innovation,Licenses,Incumbent versus entrant,Limited Dependent Variables

Patent Thickets: Strategic Patenting of Complex Technologies

Patent race models assume that an innovator wins the only patent covering a product. But when technologies are complex, this property right is defective: ownership of a product’s technology is shared, not exclusive. In that case I show that if patent standards are low, firms build “thickets” of patents, especially incumbent firms in mature industries. When they assert these patents, innovators are forced to share rents under cross-licenses, making R&D incentives sub-optimal. On the other hand, when lead time advantages are significant and patent standards are high, firms pursue strategies of “mutual non-aggression.” Then R&D incentives are stronger, even optimal.

License Auctions and Market Structure

We analyze the interplay between license auctions and market structure in a model with several incumbents and several potential entrants. The focus is on the competitiveness induced by the number of auctioned licenses. Moreover, we study how the auction format affects the incentives for explicit or tacit collusion among incumbents. A crucial role is played by the relation between the number of incumbents and the number of licenses. If the number of incumbents is greater than the number of new licenses, we show that auctioning more licenses need not result in greater competitiveness. If the number of licenses exceeds the number of incumbents, we display plausible conditions under which all incumbents get a license. Finally, we suggest a positive role for some auction formats in which the number of licenses is endogenously determined at the auction. We illustrate some results with examples drawn from European license auctions for 3G mobile telephony.

Entry Deterrence in Durable-Goods Monopoly

Some industries support Schumpeter's notion of creative destruction through innovative entrants. Others exhibit a single, persistent technological leadership. This paper explores a durable-goods monopolist threatened by entry via a new generation of the durable good. It is shown that the durability of the good either acts as an entry barrier itself or creates an opportunity for the incumbent firm to deter entry by limit pricing. As a consequence, the industry tends to remain monopolized, with successive generations of the durable good being introduced by the incumbent monopolist. We show that entry deterrence by limit pricing can lead to underinvestment in innovation.