Heads you Win Tails I lose: The Influence of Patent Strength on Downstream Entry

By Anand Nandkumar
Academy of Management | November 2017

DOI

doi.org/10.5465/ambpp.2015.16612abstract

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Nandkumar, Anand. Heads you Win Tails I lose: The Influence of Patent Strength on Downstream Entry Academy of Management doi.org/10.5465/ambpp.2015.16612abstract.

Academy of Management, 2017

Abstract

With a few exceptions, empirical work on how institutions influence entry is sparse. This paper studies how stronger patents influence entry into downstream product markets. We build on the prior literature that examines how patents influence competition, the conclusions of which are inconclusive. One stream of the literature suggests that stronger patents increase entry barriers and decreases entry into downstream markets. Another stream of the literature suggests that stronger patents create Markets For Technology, and consequently increases downstream entry. In this study, we show that the effect of patents on downstream entry varies by the nature of the industry based on whether technology in that industry can be licensed or sold in a disembodied form. Using recently enacted Indian patent reforms and a novel dataset based on Indian patents that spans 36 industries over 27 years, we show that strengthening patents in India increased the number of technology licensors, which subsequently increased downstream entry in disembodied industries whereas it decreased incumbent firms’ patenting activity and decreased downstream entry in embodied industries.

Anand Nandkumar is an Associate Professor of Strategy, Executive Director of SRITNE at the Indian School of Business (ISB), and Associate Dean of the Centre for Learning and Teaching Excellence. He explores industry and firm-level phenomena that influence innovation - the generation of new ideas, and entrepreneurship - distribution and commercialisation of new ideas. His research focuses on high-technology industries such as pharmaceuticals, biotechnology, and software, and it falls in between industrial organisation (IO), economics of technological change, and strategy.

Professor Nandkumar’s current work in the innovation stream examines the effect of stronger intellectual property rights (IPR) on different aspects of innovation, such as the influence of stronger patents on long run incentives for innovation or the influence of stronger patents on the functioning of Markets for Technology (MFT). In the entrepreneurship stream, his current work examines the influence of venture capitalists on entrepreneurial performance.

Professor Nandkumar graduated with a PhD in Public Policy and Management, with a focus in strategy and entrepreneurship from Carnegie Mellon University in 2008. Prior to his PhD, he worked for 3 years with a startup in Silicon Valley, and prior to that, in New York City with one of the world’s largest financial services firms.

True to his expertise, at ISB, Professor Nandkumar teaches Strategic Innovation Management and Strategic Challenges for Innovation-based startups.

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