IFS Working Paper (W16/02)

Technology entry in the presence of patent thickets

Date: 12 February 2016
Publisher: Institute for Fiscal Studies
ISSN: 1742-0415
JEL classification: O34, O31, L20, K11
DOI: 10.1920/wp.ifs.2016.1602

We analyze 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 characterized by varying technological opportunity, complexity of technology, and the potential for hold‐up in patent thickets. We show empirically that our measure of patent thickets 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 characterized by more technological complexity and opportunity, in contrast, see more entry. Our evidence indicates that patent thickets raise entry costs, which leads to
less entry into technologies regardless of a firm’s size.