Are Patents Strategic Barriers to Entry?

Corinne Langinier

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: Patent protection restricts entry rather than preventing it. In case of a process innovation, it forces a potential entrant to sufficiently differentiate his production technology. We investigate whether a patentholder threatened by entry can strategically renew her patent. For low demand, the patent renewal is sufficient to deter entry, whereas a high demand attracts competitor, even if there is a patent. On the other hand, the renewal decision can signal information to an uninformed entrant whenever the patentholder is informed. This may act as a barrier to entry. Thus, a patent is renewed more frequently in presence of asymmetric information.

Date: 2004-09-01
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Published in Journal of Economics and Business, September/October 2004, vol. 56 no. 5, pp. 349-361

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