Do More Patents Mean Less Entry?

Abstract

This paper investigates the entry decision of a firm into a market that is protected by a patent. It shows how entrants use the possibility to study existing prior art before taking their entry decision. Studying prior art reduces the information asymmetry that arises due to the fact that patent strengths are private information. The paper analyses the incumbent’s incentives to pursue a raising rivals’ cost strategy by excessive patenting. The application of the model shows that the treble damages doctrine reduces the incentives for an incumbent to patent excessively.

Keywords: Strategic Patenting, Cumulative Innovation, Treble Damages, Litigation, Reading Patents, Design-Around

JEL Classification: K41, O31, L12