Abstract
The basic reasoning for intellectual property rights is that the public good character of technological knowledge requires artificial incentives for innovators in the form of temporary monopoly rights on innovations (compare chapter 2.1). According to economic theory IPR increase expected profits for the innovator and make him/her to invest more in research and development (R&D) in order to raise the innovation rate (innovation effect). Intellectual property rights influence markets throughout the innovation and diffusion effect, while taking into consideration that the diffusion effect is a twofold one and that it can be split into a positive and a negative distribution effect (see again chapter 2.1)103.
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Product patents have an additional positive distribution effect as they change the location decision of potential market entrants and hence increase and optimise the segmentation of the market. Waterson [1990].
A different but also possible interpretation would be to regard the demand curve D as an entire new one. This is the case of a product innovation. E.g. Scherer [ 1990 ].
Arrow [1975] page 620.
Schumpeter [1942] especially chapter 8.
P]atents fail to foster all worthwhile inventions“, Deardorff [1992] p. 38.
Scherer [1990] p. 623.
This problem is also known as the “common pool” problem. In a parable anglers can freely exploit common fishing grounds. A problem of appropriability, similar to the one with technological knowledge arises and over-fishing is the consequence. In addition competition requires more and more investment in fishing facilities in order to anticipate competitors with earlier success. Similar to patent races, costs of fishing are rising until they will exhaust the profits. Compare Klodt [1994] p. 26.
See again Thurow [1997] page 103.
E.g. in the survey of Sirilli [1987] for Italian industries two-thirds of inventions would have achieved even in the absence of a patent system.
In addition the structure of the market itself could provide protection as in the aircraft and semiconductor industry. There, protection is either provided through system complexity or via quick market penetration. See Levin [ 1986 ] p. 199.
The pharmaceutical, chemical and biotechnological industry make heavily use of patents whereas in other industries they are of marginal importance. See Levin [1986].
Kamien and Schwartz [1982] page 36.
Schumpeter[1942] page 106.
Add as many mail-coaches as you please, you will never get a railroad by so doing“ Schumpeter [1947] page 152.
This is what Kamien and Schwartz [1982] (page 15) call the crux of the problem and that it is impossible to achieve pareto efficiency with intellectual property rights.
Baldwin.and Scott [1987] page 8.
A similar point is maid by Tirol [1988].
Ibid. page 392.
Compare Klodt [1994] page 26.
Baldwin and Scott [1987] page 11. The term „business stealing effect“ is also common in industrial economics.
See again Baldwin and Scott [1987] page 61.
Flemmig [1990] e.g. argues in this way.
Schumpeter [1980] page 215.
Ibid.
Schmookler [1966].
Greif [1982].
Basberg [1987] p. 133.
E.g. software products in Germany are not protected under patent law but only under copyright law.
Secrecy allows them to make full use of this temporary first mover advantage. Granting a patent usually takes three to four years until full protection is awarded, a period of time which can be shorter than product lifetime in some industries.
See e.g. Tirol [1988] p. 394 and Kaufer [1988] p.35 and compare chapter 6.3.6 for issues of strategic patenting in biotechnology.
Compare Griliches [1990] p. 1699.
According to Griliches, the granting rate is around 65 percent in the U.S., over 90 percent in France, about 80 percent in the U.K. and only 35 per cent in Germany. Griliches [1990] page 1663.
Ibid page 1661.
So Kamien and Schwartz [1982] page 47.
Tirol [1988] page 390 and Schumpeter [1942] mainly chapter 8.
Baldwin and Scott [1987] page 112, Kamien and Schwartz [1982] page 218. Mansfield [1983] finds in his survey that for certain industries there is a remarkable influence of new processes on the minimum efficient scale of plant and for chemicals and petroleum also on the four-firm concentration ratio.
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Thumm, N. (2000). Microeconomic Theory of Intellectual Property Rights. In: Intellectual Property Rights. Contributions to Economics. Physica, Heidelberg. https://doi.org/10.1007/978-3-662-12101-6_3
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DOI: https://doi.org/10.1007/978-3-662-12101-6_3
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