Strategic patents and asymmetric litigation costs as entry deterrence instruments

To spur innovation, the patent protection system grants the patentee limited monopoly power to recoup his R&D investment, although, in general, allowing the use of the public good "innovation" is socially efficient. But patents and patent threats can also be used strategically, e.g. to deter entry from competitors. This note shows that, besides incumbency, the present patent protection system constitutes an additional strategic instrument that favors the incumbent, because asymmetric litigation costs may deter entry from potential rivals.