The Dark Side of Patents: Strategic Patenting, Product Market Entry and Competitor Innovation

Abstract

This paper analyses how strategic patenting effects market concentration, entry, and competitor productivity and patenting. We introduce a new market-based classification of patent as strategic patenting and start by showing that this novel measure offers improvements over those in the extant literature. We find that when firms strategically patent, overall market concentration increases and entry is deterred. Further, competitor firms experience a decline in total factor productivity following a publication of a focal firm's strategic patent. These effects are more pronounced in capital-intensive firms and technological proximate peer groups. Overall these findings demonstrate the tensions inherent in designing patent policies that promote focal firm innovation, while preventing the stifling of competitor innovation.

Keywords: Strategic Patenting, Competitors, Market Entry

JEL Classification: O3, G3