The Propensity to Patent in Oligopolistic Markets

Abstract

We analyze the strategic protection decision of an innovator between a patent and secrecy in a setting with horizontally differentiated products. By introducing the patenting decision into the well known circular city model, the impact of the disclosure requirement linked to a patent application as well as the problem of legally inventing around a patent can be taken into account. Asymmetry in the circular market leads to a consumer migration effect. We find that secrecy may be the innovator’s profit maximizing strategy whenever the mandatory disclosure of information enhances the market entry of competitors.