Appropriability, patents, and rates of innovation in complex products industries

Abstract

The economic theory of intellectual property rights is based on a rather narrow view
\nof both competition and technological knowledge. We suggest some ways of enriching
\nthis framework with a more empirically grounded view of both and, by means of a
\nsimulation model, we analyse the impact of different property right regimes on the
\ndynamics of a complex product industry, that is an industry where products are complex
\nmulti-component objects and competition takes place mainly through differentiation and
\ncomponent innovation.We show that, as the complexity of the product spaces increases,
\nstronger patent regimes yield lower rates of innovation, lower product quality, and lower
\nconsumers’ welfare.