Intellectual Property and Marketing
RAND Corporation; National Bureau of Economic Research (NBER)
University of Chicago; National Bureau of Economic Research (NBER)
Reg-Markets Center Working Paper No. 07-20
Patents impose static costs by restricting price-competition, but may provide static benefits by promoting non-price competition. Competitive firms engage in inefficient levels of non-price competition, when this has external effects on competitors. For example, patent monopolies may market more efficiently than competitors. On balance, therefore, patent expiration may have smaller or even negative effects on static welfare. Empirically, we find pharmaceutical patent expirations lower output by 5 percent in the short-run, due to post-expiration reduction in marketing. In the long-run, expirations still raise output. However, the value of monopoly marketing to consumers - excluding value to firms - approximately covers its cost.
Number of Pages in PDF File: 47Accepted Paper Series
Date posted: February 4, 2008
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