Working Paper: NBER ID: w9303
Authors: Frank R. Lichtenberg; Tomas J. Philipson
Abstract: A patent only protects an innovator from others producing the same product, but it does not protect him from others producing better products under new patents. Therefore, one may divide up the source of competition facing an innovator into within-patent competition, which results from production of the same product, and betweenpatent competition, which results from production of products on other patents. Previous theoretical and empirical micro -based analyses have emphasized the effects of intellectual property regulations on within -patent competition by showing how protecting innovative returns from imitators raises R&D incentives. However, between-patent competition affects innovative returns, particularly through creative destruction in the many high-tech industries that seem central to overall economic progress. This suggests that a fuller understanding of IP-regulations take into account its effects on between-patent competition. We find that the total effects of intellectual property regulations depend heavily on whether these unexplored effects are present. We attempt to estimate the relative magnitudes of the two sources of competition in limiting innovative returns in the U.S. pharmaceuticals market. In this market within -patent competition from so-called generic producers has been analyzed relatively more compared to competition between-patents through so called therapeutic competition. We estimate that between-patent competition, most of which occurs while a drug is under patent, costs the innovator at least as much as within-patent competition, which cannot occur until a drug is off patent. The reduction in the present discounted value of the innovator's return from between-patent competition appears to be at least as large as the reduction from competition within -patents, and may be much larger.
Keywords: No keywords provided
JEL Codes: I1; L1; K2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| IP regulations (O34) | R&D incentives (O31) |
| between-patent competition (L49) | innovative returns (O36) |
| within-patent competition (L13) | innovative returns (O36) |
| IP regulations (O34) | between-patent competition (L49) |
| between-patent competition (L49) | loss of innovative returns (O39) |
| R&D incentives (O31) | future competition (L13) |
| future competition (L13) | erosion of returns (E11) |