Reinforcing the patent system? Effects of patent fences and knowledge diffusion on the development of new industries, technical progress and social welfare

This article extends the industry dynamics model of Vallée & Yildizoglu (2006) in order to carry out a richer theoretical analysis of the consequences of a stronger patent system. This model explicitly takes into account the potentially positive effects of patents: publication of patents participates to the building of a collective knowledge stock on which new innovations can rely, and dropped patents can provide a source of technological progress for firms that are lagging behind the leaders of the industry. These dimensions of the patent system are used to question the negative results of Vallée & Yildizoglu (2006). The main results of the new model show that these positive effects do not counterbalance the negative effects of a stronger patent system on social welfare and global technological progress, even if it is a source of better protection and higher profits for the firms. The model also considers the effect of patents on the survival of the newly founded industries and on their development.