Intellectual property rights and efficient firm organization

Giacomo Ponzetto

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: I provide a justification of intellectual property rights as a source of static efficiency gains in manufacturing, rather than dynamic benefits from greater innovation. I develop a property-rights model of a supply relationship with two dimensions of non-contractible investment. In equilibrium, the first best is attained if and only if ownership of tangible and intangible assets is equally protected. If IP rights are weaker, the organization of the firm is distorted and efficiency declines: the final producer must either integrate her suppliers, which prompts a decline in their investment; or else risk their defection, which entails a waste of her expertise. My model predicts a greater prevalence of vertically integrated manufacturers where IP rights are weaker, and a switch from integration to outsourcing over the product cycle. Empirical evidence on the international supply chains of multinational companies bears out both predictions. As a normative implication, I find that IP rights should be strong but narrowly defined, to protect a business without holding up non-competing derivative innovations.

Keywords: Intellectual property; Organization; Hold-up problem; Property rights; Vertical integration; Outsourcing; Product cycle; Spin-off; Licensing (search for similar items in EconPapers)
JEL-codes: D23 D86 K11 L22 L24 O34 (search for similar items in EconPapers)
Date: 2008-12, Revised 2014-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Intellectual Property Rights and Efficient Firm Organization (2015)
Working Paper: Intellectual Property Rights and Efficient Firm Organization (2012)
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