Error Costs, Ratio Tests, and Patent Antitrust Law

Keith N. Hylton () and Wendy Xu
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Keith N. Hylton: Boston University
Wendy Xu: Boston University

Review of Industrial Organization, 2020, vol. 56, issue 4, No 2, 563-591

Abstract: Abstract This paper examines the welfare tradeoff between patent and antitrust law. Since patent and antitrust law have contradictory goals, the question that naturally arises is how one should choose between the two in instances where there is a conflict. One sensible approach to choosing between two legal standards—or between proof standards with respect to evidence—is to consider the relative costs of errors. The approach in this paper is to consider the ratio of false positives to false negatives in patent antitrust. We find that the relevant error-cost ratio for patent antitrust is the proportion of the sum of the monopoly profit and the residual consumer surplus to the deadweight loss. This error-cost ratio—for a wide range of deterministic demand functions—ranges from infinity to a low of roughly three. This suggests that patent antitrust law should err on the side of protecting innovation incentives.

Keywords: Patent antitrust; Patent monopoly; False positives; False convictions; False negatives; False acquittals; Error costs; Ratio tests (search for similar items in EconPapers)
JEL-codes: K21 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s11151-020-09761-3

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