Losing the Lead? An Empirical Investigation of the Decision to Patent

This paper presents a theoretical model on firms' patenting decision in vertically differentiated markets. The model's prediction regarding patenting and rival's market entry decision are then tested empirically. We find that in industries which are characterized by easy-to-use knowledge spillovers the technological lead of the inventor is reduced to such an extent that the propensity to patent increases. Furthermore, the intensity of patent protection has a delaying impact on rival's market entry.