Abstract
The conventional wisdom is that the formation of patent pools is welfareenhancing when patents are complementary, since the pool avoids adouble-marginalization problem associated with independent licensing.This conventional wisdom relies on the effects that pooling has ondownstream prices. However, it does not account for the potentiallysignificant role of the effect of pooling on downstream productdevelopment and commercialization. We consider development technologiesthat entail spillovers between rivals and assume that final-demandproducts are imperfect substitutes. When pool formation facilitatesinformation sharing and spillovers in development, then decreases in thedegree of product differentiation can adversely affect welfare byreducing the incentives towards product development and product marketcompetition - even with perfectly complementary patents. The analysismodifies and even negates the conventional wisdom for some settings andsuggests why patent pools are uncommon in science-based industries suchas biotech and pharmaceuticals that are characterized by tacit knowledgeand incomplete patents.
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CITATION STYLE
Alabert, A., & Gyongy, I. (2006). On Numerical Approximation of Stochastic Burgers’ Equation. In From Stochastic Calculus to Mathematical Finance (pp. 1–15). Springer Berlin Heidelberg. https://doi.org/10.1007/978-3-540-30788-4_1
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