Advertisement

Patent Policy and Relationship Between Innovation and Monopoly Power: Evidence from Indian High and Medium Technology Industries

Chapter
  • 243 Downloads

Abstract

India strengthened its patent policy by complying with the Agreement on Trade-Related Aspects of Intellectual Property Rights. These changes in the policy influence firms’ incentive to engage in innovation activities and concomitantly the competition in the market. This study analyzes the impact of patent policy change on a two-way relationship between innovation and monopoly power by utilizing firm-level panel data of 686 high and medium technology firms over 1995–2015. Findings suggest that there is a nonlinear impact (inverted U-shaped) of monopoly power on patenting in the post-TRIPs regime. Further, as expected, patenting positively influences the firms’ monopoly power in both pre- and post-TRIPs regime. While investigating the nonlinear impact of patenting on monopoly power, we also found the inverted U-shaped relationship during the transition phase of policy change (1995–2005). We conclude that the patent policy change has a significant impact on the innovation and monopoly power relationship in Indian firms.

Keywords

Patent policy change Patenting Monopoly power High and medium technology industries 

JEL classification

L10 L11 L12 L60 O30 

Notes

Acknowledgements

We would like to thank Prof. N. S. Siddharthan, Prof. K. Narayanan and Prof. B. N. Goldar for their helpful comments on earlier draft of this paper.

References

  1. Aggarwal, A. (2018). The impact of foreign ownership on research and development intensity and technology acquisition in Indian industries: Pre and post global financial crisis. Asian Development Review, 35(1), 1–26.CrossRefGoogle Scholar
  2. Aghion, P., Bloom, N., Blundell, R., Griffith, R., & Howitt, P. (2005). Competition and innovation: An inverted-U relationship. The Quarterly Journal of Economics, 120(2), 701–728.Google Scholar
  3. Ambrammal, S. K., & Sharma, R. (2014). R&D and patenting by firms in India in high-and medium-high-technology industries. Journal of Chinese Economic and Business Studies, 12(2), 181–207.CrossRefGoogle Scholar
  4. Ambrammal, S. K., & Sharma, R. (2016). Impact of patenting on firms’ performance: an empirical investigation based on manufacturing firms in India. Economics of Innovation and New Technology, 25(1), 14–32.CrossRefGoogle Scholar
  5. Arrow, K. (1962). Economic welfare and the allocation of resources for invention. In The rate and direction of inventive activity: Economic and social factors (pp. 609–626). Princeton University Press.Google Scholar
  6. Autio, E., & Acs, Z. (2010). Intellectual property protection and the formation of entrepreneurial growth aspirations. Strategic Entrepreneurship Journal, 4(3), 234–251.CrossRefGoogle Scholar
  7. Bain, J. S. (1968). Industrial organization. New York: Wiley.Google Scholar
  8. Baltagi, B. H., & Li, Q. (1992). A note on the estimation of simultaneous equations with error components. Econometric Theory, 8(1), 113–119.CrossRefGoogle Scholar
  9. Basant, R. (1997). Technology strategies of large enterprises in Indian industry: Some explorations. World Development, 25(10), 1683–1700.CrossRefGoogle Scholar
  10. Basant, R., & Mishra, P. (2014). Determinants of inter-industry variations in research and development efforts in Indian manufacturing sector: A dynamic panel data analysis. Innovation and Development, 4(1), 91–109.CrossRefGoogle Scholar
  11. Berchicci, L. (2013). Towards an open R&D system: Internal R&D investment, external knowledge acquisition and innovative performance. Research Policy, 42(1), 117–127.CrossRefGoogle Scholar
  12. Boring, A. (2015). The impact of patent protection on US pharmaceutical exports to developing countries. Applied Economics, 47(13), 1314–1330.CrossRefGoogle Scholar
  13. Chadha, A. (2009). TRIPs and patenting activity: Evidence from the Indian pharmaceutical industry. Economic Modelling, 26(2), 499–505.CrossRefGoogle Scholar
  14. Clerides, S., Delis, M. D., & Kokas, S. (2015). A new data set on competition in national banking markets. Financial Markets, Institutions and Instruments, 24(2–3), 267–311.CrossRefGoogle Scholar
  15. Cohen, W. M., & Levinthal, D. A. (1989). Innovation and learning: The two faces of R & D. The Economic Journal, 99(397), 569–596.CrossRefGoogle Scholar
  16. Correa, J. A. (2012). Innovation and competition: An unstable relationship. Journal of Applied Econometrics, 27(1), 160–166.CrossRefGoogle Scholar
  17. Crépon, B., Duguet, E., & Mairessec, J. (1998). Research, innovation and productivity: An econometric analysis at the firm level. Economics of Innovation and New Technology, 7(2), 115–158.CrossRefGoogle Scholar
  18. Davidsson, P. (1991). Continued entrepreneurship: Ability, need, and opportunity as determinants of small firm growth. Journal of Business Venturing, 6(6), 405–429.CrossRefGoogle Scholar
  19. Delorme, C. D., Jr., Kamerschen, D. R., Klein, P. G., & Voeks, L. F. (2002). Structure, conduct and performance: A simultaneous equations approach. Applied Economics, 34(17), 2135–2141.CrossRefGoogle Scholar
  20. Deolalikar, A. B., & Röller, L. H. (1989). Patenting by manufacturing firms in India: Its production and impact. The Journal of Industrial Economics, 37(3), 303–314.CrossRefGoogle Scholar
  21. Dhanora, M., Sharma, R., & Jose, M. (2019). Two-way relationship between innovation and market structure: Evidence from Indian high and medium technology firms. Economics of Innovation and New Technology, 1–22.  https://doi.org/10.1080/10438599.2019.1596575.
  22. Dhanora, M., Sharma, R., & Khachoo, Q. (2018). Non-linear impact of product and process innovations on market power: A theoretical and empirical investigation. Economic Modelling, 70, 67–77.CrossRefGoogle Scholar
  23. Djankov, S., La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. (2002). The regulation of entry. The Quarterly Journal of Economics, 117(1), 1–37.CrossRefGoogle Scholar
  24. Evenson, R. E., & Joseph, K. J. (1999). Foreign technology licensing in Indian Industry: An econometric analysis of the choice of partners, terms of contract and the effect on licensees’ performance. Economic and Political Weekly, 34(27), 1801–1809.Google Scholar
  25. Fu, X., & Gong, Y. (2011). Indigenous and foreign innovation efforts and drivers of technological upgrading: Evidence from China. World Development, 39(7), 1213–1225.CrossRefGoogle Scholar
  26. Gilbert, R. J., & Newbery, D. M. (1982). Preemptive patenting and the persistence of monopoly. The American Economic Review, 72(3), 514–526.Google Scholar
  27. Ginarte, J. C., & Park, W. G. (1997). Determinants of patent rights: A cross-national study. Research Policy, 26(3), 283–301.CrossRefGoogle Scholar
  28. Griliches, Z. (1979). Issues in assessing the contribution of research and development to productivity growth. The Bell Journal of Economics, 10(1), 92–116.CrossRefGoogle Scholar
  29. Griliches, Z. (1981). Market value, R&D, and patents. Economics Letters, 7(2), 183–187.CrossRefGoogle Scholar
  30. Grossman, G. M., & Helpman, E. (1993). Innovation and growth in the global economy. MIT press.Google Scholar
  31. Gupta, V. K. (1983). A simultaneous determination of structure, conduct and performance in Canadian manufacturing. Oxford Economic Papers, 35(2), 281–301.CrossRefGoogle Scholar
  32. Haley, G. T., & Haley, U. C. (2012). The effects of patent-law changes on innovation: The case of India’s pharmaceutical industry. Technological Forecasting and Social Change, 79(4), 607–619.CrossRefGoogle Scholar
  33. Hausmann, R., Hidalgo, C. A., Bustos, S., Coscia, M., Simoes, A., & Yildirim, M. A. (2014). The atlas of economic complexity: Mapping paths to prosperity. MIT Press.Google Scholar
  34. Jagadeesh, H., & Sasidharan, S. (2014). Do stronger IPR regimes influence R&D efforts? Evidence from the Indian pharmaceutical industry. Global Business Review, 15(2), 189–204.CrossRefGoogle Scholar
  35. Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decisions under risk. Econometrica, 47(2), 263–292.CrossRefGoogle Scholar
  36. Kambhampati, U. S., & Parikh, A. (2003). Disciplining firms: The impact of trade reforms on profit margins in Indian industry. Applied Economics, 35(4), 461–470.CrossRefGoogle Scholar
  37. Kanwar, S., & Evenson, R. (2003). Does intellectual property protection spur technological change? Oxford Economic Papers, 55(2), 235–264.CrossRefGoogle Scholar
  38. Kathuria, V. (2008). The impact of FDI inflows on R&D investment by medium-and high-tech firms in India in the post-reform period. Transnational Corporations, 17(2), 45.Google Scholar
  39. Khachoo, Q., Sharma, R., & Dhanora, M. (2018). Does proximity to the frontier facilitate FDI-spawned spillovers on innovation and productivity? Journal of Economics and Business, 97, 39–49.CrossRefGoogle Scholar
  40. Klapper, L., Laeven, L., & Rajan, R. (2006). Entry regulation as a barrier to entrepreneurship. Journal of Financial Economics, 82(3), 591–629.CrossRefGoogle Scholar
  41. Koeller, C. T. (1995). Innovation, market structure and firm size: A simultaneous equations model. Managerial and Decision Economics, 16(3), 259–269.CrossRefGoogle Scholar
  42. Koeller, C. T. (2005). Technological opportunity and the relationship between innovation output and market structure. Managerial and Decision Economics, 26(3), 209–222.CrossRefGoogle Scholar
  43. Koetter, M., Kolari, J. W., & Spierdijk, L. (2012). Enjoying the quiet life under deregulation? Evidence from adjusted Lerner indices for US banks. Review of Economics and Statistics, 94(2), 462–480.CrossRefGoogle Scholar
  44. Kortum, S., & Lerner, J. (1998, June). Stronger protection or technological revolution: what is behind the recent surge in patenting? In Carnegie-Rochester Conference Series on Public Policy (Vol. 48, pp. 247–304). North-Holland.Google Scholar
  45. Kumar, V., Kumar, U., & Persaud, A. (1999). Building technological capability through importing technology: The case of Indonesian manufacturing industry. The Journal of Technology Transfer, 24(1), 81–96.CrossRefGoogle Scholar
  46. Kumar, N., & Saqib, M. (1996). Firm size, opportunities for adaptation and in-house R & D activity in developing countries: The case of Indian manufacturing. Research Policy, 25(5), 713–722.CrossRefGoogle Scholar
  47. Lokshin, B., Belderbos, R., & Carree, M. (2008). The productivity effects of internal and external R&D: Evidence from a dynamic panel data model. Oxford Bulletin of Economics and Statistics, 70(3), 399–413.CrossRefGoogle Scholar
  48. Lunn, J. (1986). An empirical analysis of process and product patenting: A simultaneous equation framework. The Journal of Industrial Economics, 34(3), 319–330.CrossRefGoogle Scholar
  49. Maskus, K. E. (2004). Encouraging international technology transfer (Vol. 7). Geneva: International Centre for Trade and Sustainable Development.CrossRefGoogle Scholar
  50. Moser, P. (2005). How do patent laws influence innovation? Evidence from nineteenth-century world’s fairs. American Economic Review, 95(4), 1214–1236.CrossRefGoogle Scholar
  51. Naghavi, A., & Strozzi, C. (2015). Intellectual property rights, diasporas, and domestic innovation. Journal of International Economics, 96(1), 150–161.CrossRefGoogle Scholar
  52. Narayanan, K. (1998). Technology acquisition, de-regulation and competitiveness: A study of Indian automobile industry. Research Policy, 27(2), 215–228.CrossRefGoogle Scholar
  53. Nelson, R. R. (1994). The co-evolution of technology, industrial structure, and supporting institutions. Industrial and Corporate Change, 3(1), 47–63.CrossRefGoogle Scholar
  54. Nelson, R., & Winter, S. (1982). An evolutionary theory of economic change. Harvard University Press.Google Scholar
  55. Nemlioglu, I., & Mallick, S. K. (2017). Do managerial practices matter in innovation and firm performance relations? New evidence from the UK. European Financial Management, 23(5), 1016–1061.CrossRefGoogle Scholar
  56. North, D. C. (2012). Understanding the process of economic change. In Worlds of Capitalism (pp. 107–120). Routledge.Google Scholar
  57. Pakes, A., & Griliches, Z. (1980). Patents and R&D at the firm level: A first report. Economics Letters, 5(4), 377–381.CrossRefGoogle Scholar
  58. Patel, P., & Pavitt, K. (1997). The technological competencies of the world’s largest firms: Complex and path-dependent, but not much variety. Research Policy, 26(2), 141–156.CrossRefGoogle Scholar
  59. Pisano, G. P. (1990). The R&D boundaries of the firm: An empirical analysis. Administrative Science Quarterly, 153–176.Google Scholar
  60. Resende, M. (2007). Structure, conduct and performance: A simultaneous equations investigation for the Brazilian manufacturing industry. Applied Economics, 39(7), 937–942.CrossRefGoogle Scholar
  61. Saraswathy, B. (2018). Innovation–consolidation Nexus: Evidence from India’s Manufacturing Sector. In Globalisation of Technology (pp. 183–201). Singapore: Springer.Google Scholar
  62. Sasabuchi, S. (1980). A test of a multivariate normal mean with composite hypotheses determined by linear inequalities. Biometrika, 67(2), 429–439.CrossRefGoogle Scholar
  63. Sasidharan, S., & Kathuria, V. (2011). Foreign direct investment and R&D: Substitutes or complements—A case of Indian manufacturing after 1991 reforms. World Development, 39(7), 1226–1239.CrossRefGoogle Scholar
  64. Schumpeter, J. A. (1942). Capitalism, socialism, and democracy. New York: Harper.Google Scholar
  65. Shan, W., Walker, G., & Kogut, B. (1994). Interfirm cooperation and startup innovation in the biotechnology industry. Strategic Management Journal, 15(5), 387–394.CrossRefGoogle Scholar
  66. Sharma, R., Paswan, A. K., Ambrammal, S. K., & Dhanora, M. (2018). Impact of patent policy changes on R&D expenditure by industries in India. The Journal of World Intellectual Property, 21(1–2), 52–69.CrossRefGoogle Scholar
  67. Srholec, M. (2007). High-tech exports from developing countries: A symptom of technology spurts or statistical illusion? Review of World Economics, 143(2), 227–255.CrossRefGoogle Scholar
  68. Strickland, A. D., & Weiss, L. W. (1976). Advertising, concentration, and price-cost margins. Journal of Political Economy, 84(5), 1109–1121.Google Scholar
  69. Thornhill, S. (2006). Knowledge, innovation and firm performance in high- and low-technology regimes. Journal of Business Venturing, 21(5), 687–703.CrossRefGoogle Scholar
  70. Yoon, S. (2004). A note on the market structure and performance in Korean manufacturing industries. Journal of Policy Modeling, 26(6), 733–746.CrossRefGoogle Scholar
  71. Zhang, H., & Yang, X. (2016). Intellectual property rights protection and export quality. International Journal of Development Issues, 15(2), 168–180.CrossRefGoogle Scholar

Copyright information

© Springer Nature Singapore Pte Ltd. 2020

Authors and Affiliations

  1. 1.School of Humanities and Social SciencesIndian Institute of Technology IndoreSimrolIndia

Personalised recommendations