A Note on Patents and Leniency

• Main Author: Adam Karbowski
• Format: Article
• Language: English
• Published: Collegium of Economic Analysis, SGH Warsaw School of Economics 2020-03-01
• Series: Gospodarka Narodowa. The Polish Journal of Economics
• Subjects: patents; leniency; collusion; prisoner's dilemma
• Online Access: http://www.journalssystem.com/gna/A-Note-on-Patents-and-Leniency,116615,0,2.html

The purpose of this note is to investigate the relationship between patents and market collusion. Specifically, by using game theory tools, it is shown that patents can act as a leniency mechanism, i.e., they can enable firms to leave a cartel without the risk of retaliation. However, the socially beneficial role of patents is limited because the Bertrand competition itself breaks the collusion via the existence of a prisoner’s dilemma between sufficiently myopic market rivals. In the prisoner’s dilemma, two social tensions, fear and greed, make firms deviate from collusion. Patenting breaks the collusion, but at the social cost of a temporary patent monopoly in the product market.