Abstract

http://ssrn.com/abstract=161430
 
 

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Limiting Patentees' Market Power Without Reducing Innovation Incentives: The Perverse Benefits of Uncertainty and Non-Injunctive Remedies


Ian Ayres


Yale University - Yale Law School; Yale University - Yale School of Management

Paul Klemperer


University of Oxford - Department of Economics; Centre for Economic Policy Research (CEPR)


Michigan Law Review, Vol. 97, P. 985, 1999

Abstract:     
Allowing patentees to profit from their patents encourages innovation. However, legal scholars have failed to appreciate that unconstrained monopoly pricing is socially inefficient, in that the last bit of monopoly pricing produces large amounts of deadweight loss for a relatively small amount of patentee profit. Uncertainty and delay in patent litigation may be a way of giving patentees constrained market power to reduce this inefficiency. It is possible to limit patentee's market power without reducing their incentives to innovate. Because the profit curve is "stationary" at the profit-maximizing price, small reduction from the monopoly price will not substantially reduce the patentee's incentive to innovate (but will yield substantial decreases in the dead weight loss). And more substantial reduction in monopoly pricing can be efficiently offset by increases in patent duration. Society would be better off giving patentees limited market power for a longer period rather than giving patentees monopoly power for a shorter period.

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Date posted: June 6, 1999  

Suggested Citation

Ayres, Ian and Klemperer, Paul, Limiting Patentees' Market Power Without Reducing Innovation Incentives: The Perverse Benefits of Uncertainty and Non-Injunctive Remedies. Michigan Law Review, Vol. 97, P. 985, 1999. Available at SSRN: http://ssrn.com/abstract=161430

Contact Information

Ian Ayres (Contact Author)
Yale University - Yale Law School ( email )
P.O. Box 208215
New Haven, CT 06520-8215
United States
203-432-7101 (Phone)
203-432-2592 (Fax)
Yale University - Yale School of Management
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
Paul Klemperer
University of Oxford - Department of Economics ( email )
Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom
+44 1865 278 588 (Phone)
+44 1865 278 557 (Fax)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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