How Patents Provide the Foundation of the Market for Inventions

78 Pages Posted: 28 Aug 2014 Last revised: 11 Sep 2014

Date Written: June 26, 2014


The paper develops a comprehensive framework demonstrating how patents provide the foundation of the market for inventions. Patents support the establishment of the market in several key ways. First, patents provide a system of intellectual property (IP) rights that increases transaction efficiencies and stimulates competition by offering exclusion, transferability, disclosure, certification, standardization, and divisibility. Second, patents provide efficient incentives for invention, innovation, and investment in complementary assets so that the market for inventions is a market for innovative control. Third, patents as intangible real assets promote the financing of invention and innovation. The market foundation role of patents refutes the economically incorrect “rewards” view of patents. The discussion considers how economic benefits of the market for inventions should guide IP policy and antitrust policy.

Keywords: Patents, invention, R&D, competition, innovation, entry, incentives

JEL Classification: D40, O31, L10, K10, K30

Suggested Citation

Spulber, Daniel F., How Patents Provide the Foundation of the Market for Inventions (June 26, 2014). Northwestern Law & Econ Research Paper No. 14-14, Available at SSRN: or

Daniel F. Spulber (Contact Author)

Northwestern University - Kellogg School of Management ( email )

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