Patents Hinder Collusion

Abstract

We argue that a patent system makes collusion among innovators more difficult. Our simple argument is based on two properties of the patent system. First, a patent not only protects against infringement but also against retaliation by former collusion members. Second, a deviator has an equal chance with former collusion members to get a patent on new innovations. We show that if a patent system reduces spillovers, it renders collusion impossible. Moreover, it is possible to design a patent system that simultaneously increases knowledge spillovers and eliminates collusionPatens, Collusion, Secrecy, Innovation