Technology Entry in the Presence of Patent Thickets

Authors: Georg von Graevenitz (Queen Mary University of London), Bronwyn Hall (University of California, Berkeley) and Christian Helmers (Santa Clara University)

We analyse the effect of patent thickets on entry into technology areas by firms in the UK. We present a model that describes incentives to enter technology areas characterised by varying technological opportunity, complexity of technology, and the potential for hold-up in patent thickets. This two stage model encompasses entry and firms’ subsequent patenting decisions. We derive a number of predictions regarding effects of complexity (positive), opportunity (positive), expected hold-up (negative) on entry from the model. The predictions are tested using data on patenting activity of UK firms. We distinguish empirically between complexity and hold-up potential and control for technological opportunity in several different ways. The measure of hold-up potential is associated with a reduction of first time patenting in a given technology area, controlling for the level of technological complexity and opportunity. Technological areas characterised by more technological complexity and opportunity, in contrast, see more entry. This is in line with the predictions we derive from the theoretical model. Our evidence indicates that patent thickets raise entry costs, which leads to less entry into technologies. This effect is independent of a firm’s size in our data.

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