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Revisiting Antitrust Limits to Probabilistic Patent Disputes: Strategic Entry and Asymmetric Information

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  • Jing-Yuan Chiou
  • Richard Schmidtke

Abstract

We consider separately strategic entry and asymmetric information in the design of the settlement policy governing patent disputes, with a focus on Shapiro's (2003) consumer protection rule. We show that, when a potential entrant strategically incurs an entry cost before engaging in a patent dispute, a more stringent settlement policy of deterring costly entry benefits the patent-holder and may raise static efficiency. Concerning asymmetric information, when the disputants, but not the court, learn the patent validity, we derive an 'expectation test,' which requires that a laxer settlement policy be coupled with higher expected patent validity under settlement. Copyright 2012, Oxford University Press.

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  • Jing-Yuan Chiou & Richard Schmidtke, 2012. "Revisiting Antitrust Limits to Probabilistic Patent Disputes: Strategic Entry and Asymmetric Information," American Law and Economics Review, American Law and Economics Association, vol. 14(2), pages 425-456.
    • Handle: RePEc:oup:amlawe:v:14:y:2012:i:2:p:425-456
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    File URL: http://hdl.handle.net/10.1093/aler/ahs013
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    Cited by:

    1. Erik Hovenkamp & Jorge Lemus, 2022. "Antitrust Limits on Patent Settlements: A New Approach," Journal of Industrial Economics, Wiley Blackwell, vol. 70(2), pages 257-293, June.

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