Defensive Disclosure under Antitrust Enforcement

Ajay Bhaskarabhatla and Enrico Pennings

No 12-08, DRUID Working Papers from DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies

Abstract: We formulate a simple model of optimal defensive disclosure by a dominant firm facing uncertain antitrust enforcement and test its implications using unique data on defensive disclosures and patents by IBM. Our results indicate that stronger antitrust enforcement leads to more defensive disclosure, that quality inventions are also disclosed defensively, and that defensive disclosure served as an alternative, but less successful, mechanism to patenting at IBM in appropriating returns from R&D. We extend our analysis to two other exceptionally large firms with defensive-disclosure activity, AT&T and Xerox, and show that their patenting propensity declined under increased antitrust enforcement relative to other firms in the industry. Overall, we show how these firms used defensive disclosure as a strategy to balance the benefits of patenting with the costs of uncertain antitrust enforcement.

Date: 2012
New Economics Papers: this item is included in nep-bec, nep-com, nep-ind, nep-ino, nep-ipr and nep-pr~
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