Acquisitions for Sleep

Pehr-Johan Norbäck 1 , Charlotta Olofsson 2  and Lars Persson 1
  • 1 Research Institute of Industrial Economics, Grevgatan 34, Stockholm, Sweden
  • 2 Lund University and Research Institute of Industrial Economics, Grevgatan 34, Stockholm, Sweden
Pehr-Johan Norbäck, Charlotta Olofsson
  • Lund University and Research Institute of Industrial Economics, Grevgatan 34, Stockholm, 10215, Sweden
  • Email
  • Search for other articles:
  • degruyter.comGoogle Scholar
and Lars Persson
  • Corresponding author
  • Research Institute of Industrial Economics, Grevgatan 34, Stockholm, 10215, Sweden
  • Email
  • Search for other articles:
  • degruyter.comGoogle Scholar

Abstract

Within the policy debate, there is a fear that large incumbent firms buy small firms’ inventions to ensure that they are not used in the market. We show that such “acquisitions for sleep” can occur if and only if the quality of a process invention is small; otherwise, the entry profit will be higher than the entry-deterring value. We then show that the incentive for acquiring for the purpose of putting a patent to sleep decreases when the intellectual property law is stricter because the profit for the entrant then increases more than the entry-deterring value does.

    • Supplementary Material Details
  • Arora, A. 1995. “Licensing Tacit Knowledge: Intellectual Property Rights And The Market For Know-How.” Economics of Innovation and New Technology 4 (1): 41–60.

  • Arora, A., A. Fosfuri, and A. Gambardella, 2001. “Markets for Technology and their Implications for Corporate Strategy.” Industrial and Corporate Change 10 (2): 419–51.

  • Arrow, Kenneth. 1962. “Economic Welfare and the Allocation of Resources for Invention.” In The Rate and Direction of Inventive Activity: Economic and Social Factors edited by Richard Nelson, 609–26. Princeton, NJ: Princeton University Press.

  • Boldrin, M., and D. K. Levine. 2013. “The Case Against Patents.” Journal of Economic Perspectives 27 (1): 3–22.

  • Cunningham, Colleen, Florian Ederer, and Song Ma. Killer Acquisitions (March 22, 2019). Available at SSRN: https://ssrn.com/abstract=3241707 or http://dx.doi.org/10.2139/ssrn.3241707.

  • Choi, J. P., and H. Gerlach. 2017. “A Theory of Patent Portfolios.” American Economic Journal: Microeconomics 9 (1): 315–51.

  • Federico, Giulio, Gregor Langus, and Tommaso Valletti. 2017. “A Simple Model of Mergers and Innovation.” Economics Letters 157: 136–40.

  • Federico, Giulio, Gregor Langus, and Tommaso Valletti. 2018. “Horizontal Mergers and Product Innovation.” International Journal of Industrial Organization 59: 1–23.

  • Gans, J. S., D. H. Hsu, and S. Stern. 2002. “When Does Start-Up Innovation Spur the Gale of Creative Destruction?” RAND Journal of Economics 33 (4): 571–86.

  • Gans, J. S., D. H. Hsu, and S. Stern. 2008. “The Impact of Uncertain Intellectual Property Rights on the Market for Ideas: Evidence from Patent Grant Delays.” Management Science 54, no. 5 (May): 982–97.

  • Gans, Joshua, and Lars Persson, 2013. “Entrepreneurial Commercialization Choices and the Interaction Between IPR and Competition Policy.” Industrial and Corporate Change 22, no. 1 (February): 131-51.

  • Gans, J. S., and S. Stern. 2003. “The Product Market and the Market for “Ideas”: Commercialization Strategies for Technology entrepreneurs.” Research Policy 32 (2): 333–50.

  • Gilbert, R. J., and D. M. G. Newbery. 1982. “Preemptive Patenting and the Persistence of Monopoly.” American Economic Review 72 (3): 514–26.

  • Gilbert, Richard. 2018. “Mergers and R & D Diversity: How Much Competition is Enough?” UC Berkeley Economics Working Paper.

  • Gotts, I. K., and S. Sher. 2012, “The Particular Antitrust Concerns with Patent Acquisitions.” Competition Law International August. https://www.wsgr.com/images/content/1/3/130/sher-august-12.pdf.

  • Hovenkamp, Erik N., and Herbert J. Hovenkamp. 2017. “Buying Monopoly: Antitrust Limits on Damages for Externally Acquired Patents”. Faculty Scholarship. 1791. http://scholarship.law.upenn.edu/faculty_scholarship/1791.

  • Jehiel, P., and B. Moldovanu. 2000. “Auctions with Downstream Interaction among Buyers.” RAND Journal of Economics 31 (4): 768–91.

  • Jehiel, P., B. Moldovanu, and E. Stacchetti. 1999. “Multidimensional Mechanism design for auctions with externalities.” Journal of Economic Theory 85: 258–93.

  • Mankiw, N. Gregory, and Michael D. Whinston. 1986. “Free Entry and Social Inefficiency.” The RAND Journal of Economics 17, no. 1. (Spring): 48–58.

  • Motta, Massimo, and Emanuele Tarantino. 2017. “The Effect of Horizontal Mergers, When Firms Compete in Prices and Investments.” UPF Economics Working Papers.

  • Norbäck, P. J., and L. Persson. 2012. “Entrepreneurial Innovations, Competition and Competition Policy.” European Economic Review 56 (3): 488–506.

  • Norbäck, P. J., L. Persson, and R. Svensson. 2016. “Creative Destruction and Productive Preemptive Acquisitions.” Journal of Business Venturing 31 (3): 326–43.

  • Morton, F. M. S., and S. Shapiro. 2014. “Strategic Patent Acquisition.” Antitrust Law Journal 79 (2): 463–99.

  • Salant, Stephen W., Sheldon Switzer, and Robert J. Reynolds. 1983. “Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot–Nash Equilibrium.” The Quarterly Journal of Economics 98, no. 2 (May): 185–99.

  • Torrisi, S., A. Gambardella, P. Giuri, D. Harhoff, K. Hoisl, and M. Mariani. 2016. “Used, Blocking and Sleeping Patents: Empirical Evidence from a Large-Scale Inventor Survey.” Research Policy 45 (7): 1374–85.

  • Ziedonis, R. 2004. “Don’t Fence Me In: Fragmented Markets for Technology and the Patent Acquisition Strategies of Firms.” Management Science 50 (6): 804–20.

Purchase article
Get instant unlimited access to the article.
$42.00
Log in
Already have access? Please log in.


or
Log in with your institution

Journal + Issues

The B.E. Journal of Economic Analysis & Policy (BEJEAP) is an international forum for scholarship that employs microeconomics to analyze issues in business, consumer behavior and public policy. Topics include the interaction of firms, the functioning of markets, the effects of domestic and international policy and the design of organizations and institutions.

Search