Langinier, Corinne

Canadian Journal of Economics Vol. 38 no. 2 (2005): 520-545. (Originally published as WP #04009, January 2005)

Recent surveys report that firms claim they do not rely heavily on patents in order to appropriate a return on their innovation. Yet, firms do patent, as indicated by the large number of patents that are granted. This paper offers a possible resolution to this puzzle. It takes a simplified version of a duopoly innovation race, and studies the patenting decision of an innovator who has private information about the improvability of her innovation. In this setting, it is shown that a firm may use the patenting decision to mislead her rival. Under symmetric information, research can be stimulated but not disclosed. However, under asymmetric information, disclosure is more likely even though the incentive to do research may be weakened.

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