Is there a Relationship between Industry Concentration and Patent Activity?
20 Pages Posted: 6 Jan 2010
Date Written: December 17, 2009
The relationship between market concentration and quantity of patent activity may reveal more than the validity of Schumpeter’s (1942) hypothesis that innovation is greater in imperfectly competitive markets. Empirical estimates of the relationship may reveal the relative importance of different uses of patents, which include recovering R&D investment and obtaining strategic advantages over competitors. With a sample of over 1000 North American manufacturing firms, I explore this possibility and initially find a positive relationship between a firm’s industry concentration and number of granted patents. However, after controlling for R&D expenditure, this relationship disappears while R&D expenditure itself has a large positive impact on patent quantity. This suggests an indirect relationship between industry concentration and patent activity - R&D expenditure is positively related to industry concentration and patent activity is positively related to R&D expenditure, but given a level of R&D expenditure patent activity is independent of industry concentration. This indirect relationship suggests the predominant use of patents across manufacturing industries is to recover R&D investment. However, in particular industries where patents are used more frequently for strategic reasons it remains possible that industry concentration has a significant independent effect on patent activity. Further research, that isolates inter-industry differences in the use of patents, is needed to test this possibility.
Keywords: patent, innovation, industry concentration
JEL Classification: L20, O34
Suggested Citation: Suggested Citation