Private and Public Supply of Intellectual Property Rights
Abstract: Intellectual property rights are often characterized as the sole mechanism by which innovators can control the unconsented usage of technological and creative goods. This is false: public intellectual property rights always coexist with private intellectual property rights. The presence of “private IP” alters the anticipated effects of “public IP” on innovation investment. Those effects differ as a function of firms’ costs of substituting toward private IP. The effects of public IP are weakest in the case of large integrated incumbents, which are sheltered by economies of scale, brand capital, and other complementary assets that substitute for public IP, and strongest in the case of younger, smaller and less integrated entrants, which cannot easily replicate those private IP alternatives. The differential effects of public IP as a function of firm size and scale imply that changes in public IP influence the set of feasible organizational forms in innovation markets. Strong public IP promotes entrepreneurial environments in which innovators can select from an unrestricted set of organizational forms at each stage of the innovation and commercialization process. Weak public IP promotes hierarchical environments populated by a restricted set of organizational forms consisting of large integrated entities and governmental and private patronage institutions. These propositions are consistent with organizational and political-economic behavior in selected markets.
