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I am aware of some work such as

O'Donoghue (1998): "A Patentability Requirement for Sequential Innovation", RAND Journal of Economics

and

Hunt (1999): "Nonobviousness and the incentive to innovate: an economics analysis of intellectual property reform"

that discuss cases in which offering better protection for intellectual property (in these cases, by lowering patentability requirements) might reduce the incentive for firms to innovate.

Very roughly, the basic mechanism in these papers is that lowering the threshold for patentability means that an incumbent with a patent expects to be superseded by someone else with a better patent very quickly. Since the advantage to a patent does not last long, the incentives to invest in innovation to acquire such a patent are reduced.

I am curious whether people can suggest other mechanisms by which strengthening intellectual property protection (including moving from no protection to a positive degree of protection) can reduce innovation, and provide relevant references.

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  • $\begingroup$ Strengthening intellectual property protection affects negatively the incentives of a successful innovator to continue innovating, because the previous innovation takes longer to become exploitable by others. Sounds as reasonable as the opposite argument. $\endgroup$ – Alecos Papadopoulos Jul 22 '15 at 23:40
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The cuisine and fashion industries both largely exist without intellectual property protection other than trademarks (n.b., they can use copyright on certain aspects of their work but this is generally thought to give little protection) yet they seem to flourish. How is this possible?

In fashion, it is thought that copying the work of other designers can be good for everyone, allowing the industry to have a color of the year and products like bags and dresses at various quality, fit, and price levels.

There may be related forces at play in cuisine. It is difficult to imagine the Cronut fad lasting as long as it did without other bakeries making very similar efforts to keep customers interested and the product in the news.

This is only one mechanism. Another mechanism giving rise to negative outcomes is barriers to entry. Think of patents as raising the returns and costs both to entry into an industry. They raise returns because conditional on getting greater IP protection you have more economic rents from your IP based monopoly. But because others already have these heavy protections the cost to a new entrant of innovating and litigating in a way that permits entry to the industry will be much higher. The consensus seems to be that at some point the marginal benefits of greater protection fall faster than the marginal costs of entry increase, leading to something like the Tabarrok Curve for patent protection: enter image description here Source: Marginal Revolution

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