Working Paper: NBER ID: w12563
Authors: Iain M. Cockburn; Megan J. MacGarvie
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.
Keywords: patents; software industry; market entry; intellectual property; competition
JEL Codes: L1; L6; O34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| 10% increase in the number of patents relevant to a market (O34) | entry rate (L26) |
| having patents (O34) | market entry likelihood (F23) |
| 1% increase in the number of patents (O39) | number of entrants (D44) |
| patents serve as substitutes for complementary assets (O34) | greater entry-deterring effects for firms without prior market experience (L19) |