Entry and Patenting in the Software Industry

48 Pages Posted: 8 Oct 2006 Last revised: 29 Oct 2014

See all articles by Iain M. Cockburn

Iain M. Cockburn

Boston University Questrom School of Business; National Bureau of Economic Research (NBER)

Megan MacGarvie

Boston University School of Management; National Bureau of Economic Research (NBER)

Date Written: October 2006

Abstract

To what extent are firms kept out of a market by patents covering related technologies? Do patents held by potential entrants make it easier to enter markets? We estimate the empirical relationship between market entry and patents for 27 narrowly defined categories of software products during the period 1990-2004. Controlling for demand, market structure, average patent quality, and other factors, we find that a 10% increase in the number of patents relevant to market reduces the rate of entry by 3-8%, and this relationship intensified following expansions in the patentability of software in the mid-1990s. However, potential entrants with patent applications relevant to a market are more likely to enter it. Finally, patents appear to substitute for complementary assets in the entry process, as patents have both greater entry-deterring and entry-promoting effects for firms without prior experience in other markets.

Suggested Citation

Cockburn, Iain M. and MacGarvie, Megan, Entry and Patenting in the Software Industry (October 2006). NBER Working Paper No. w12563, Available at SSRN: https://ssrn.com/abstract=934758

Iain M. Cockburn (Contact Author)

Boston University Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States
617-353-3775 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Megan MacGarvie

Boston University School of Management ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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