Dynamic Analysis of Intellectual Property

This chapter proposes a dynamic approach to IP analysis that assesses the effects of changes in the strength of IP rights by anticipating firms’ ability to adopt alternative non-IP mechanisms for capturing returns on innovation. Some of the most powerful non-IP alternatives are the economies of scale, financing capacities, and accumulated goodwill that are inherent to older, larger, and more integrated entities. By contrast, these non-IP alternatives are generally unavailable to younger, smaller, and less integrated entities. These entity-specific differences in adopting non-IP alternatives imply that changes in the strength of IP rights can have significantly different effects on different entity types as a function of age, size, and level of integration. Critically, weak- or zero-IP regimes can advantage large incumbents by compelling exit or deterring entry by smaller and less integrated firms that cannot sufficiently monetize R&D investments in the absence of reasonably secure IP protections.