 The Patent System as a Tool for Eroding Market PowerMPRA Paper from University Library of Munich, Germany Abstract: The conventional viewpoint on the patent system is that it allocates market power in order to stimulate disclosure of information and create incentives for firms to innovate. This paper develops a dynamic equilibrium search model to show that, in sharp contrast to this traditional view, the patent system can erode, rather than allocate market power. This result can be obtained, regardless of whether or not it provides prior user rights, by incentivizing firms to patent and, at the same time, delivering a sufficiently weak patent protection. The patent system delivers incentives by punishing firms that choose not to patent (when there are no prior user rights) and by providing a strategic advantage to firms that patent (when there are prior user rights). I find that it may be optimal to set weak patent protection so as to induce only some firms to patent while others keep identical innovations secret. This result suggests that the patent system's ability to erode market power may be central to its capability to increase welfare. Keywords: Patent; Secrecy; Competition; Market Power; Simultaneous Innovation; Search (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:81330 Access Statistics for this paper More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC. |
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