Abstract:
We analyze the strategic protection decision of an innovator between a patent
and secrecy in a setting with horizontally differentiated products. By introducing
the patenting decision into the well known circular city model, the
impact of the disclosure requirement linked to a patent application as well as
the problem of legally inventing around a patent can be taken into account.
Asymmetry in the circular market leads to a consumer migration effect. We
find that secrecy may be the innovator’s profit maximizing strategy whenever
the mandatory disclosure of information enhances the market entry of
competitors.