Using Patent Citation Patterns to Infer Innovation Market Competition

33 Pages Posted: 8 Sep 2009 Last revised: 21 May 2012

See all articles by Darshak Patel

Darshak Patel

University of Kentucky - Gatton College of Business and Economics

Michael R. Ward

University of Texas at Arlington - College of Business Administration - Department of Economics; ZEW, Mannheim

Date Written: September 1, 2010

Abstract

We propose an empirical strategy for estimating competition in innovation markets based on a model of creative-destruction. Our method relates firms’ market return on equity to information about patent citation patterns. Two innovations we introduce are using daily abnormal stock returns rather than annual measures of Tobin’s q and creating citation patterns related to the area of science a firm patents in as represented by the detailed patent classification system. We find that firm’s market value increases when its patent portfolio is cited and when there are citations to an area of science in which their patent portfolios are prominent. Holding this effect constant, we find that citations from patents in the same area of science tend to reduce market value. We interpret these findings as consistent with more citations indicating more valuable intellectual property but citations from competing technologies decreasing its value.

Keywords: Patent, Competition, Event Study

JEL Classification: O31, L65, G12

Suggested Citation

Patel, Darshak and Ward, Michael Robert, Using Patent Citation Patterns to Infer Innovation Market Competition (September 1, 2010). Research Policy, Vol. 40, No. 6, 2011, Available at SSRN: https://ssrn.com/abstract=1470193 or http://dx.doi.org/10.2139/ssrn.1470193

Darshak Patel

University of Kentucky - Gatton College of Business and Economics ( email )

Economics Department
Lexington, KY 40506-0034
United States

Michael Robert Ward (Contact Author)

University of Texas at Arlington - College of Business Administration - Department of Economics ( email )

330 Business Building
Box 19479
Arlington, TX 76019
United States
817-272-3090 (Phone)
817-272-3145 (Fax)

ZEW, Mannheim ( email )

D-68034 Mannheim
Germany

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