Patent Protection and Threat of Litigation in Oligopoly

21 Pages Posted: 6 Mar 2018  

Carlo Capuano

University of Naples Federico II - Department of Economic and Statistical Sciences

Iacopo Grassi

Università Federico II

Date Written: March 6, 2018

Abstract

In recent years, the increasing awarding of patents has captured the attention of scholars operating in different fields. The economic literature has studied the causes of this proliferation; we propose an entry game focusing on one of the consequences, showing how an incumbent may create a patent portfolio in order to control market entry and to collude. The incumbent fixes the level of patent protection and the threat of denunciation reduces the entrants expected profits; moreover, if the entrant deviates from collusion, the incumbent can strengthen punishment suing the competitor for patent infringement, reducing her incentive to deviate. Our analysis suggests that antitrust authorities should pay attention to the level of patent protection implemented by the incumbent and note whether the holder of a patent reacts to entry by either suing or not suing the competitor. In the model, we use completely general functional forms in analyzing the issues, and this allows us to obtain general results not depending on the assumptions about the kind of oligopolistic competition.

Keywords: patents, patent portfolio, litigation, collusion, foreclosing, entry game

JEL Classification: D43, K21, L13

Suggested Citation

Capuano, Carlo and Grassi, Iacopo, Patent Protection and Threat of Litigation in Oligopoly (March 6, 2018). Available at SSRN: https://ssrn.com/abstract=3135093

Carlo Capuano (Contact Author)

University of Naples Federico II - Department of Economic and Statistical Sciences ( email )

Via Cintia 26
Napoli
Italy

Iacopo Grassi

Università Federico II ( email )

via Rodinò 22
Napoli, Napoli 80132
Italy

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