Macroeconomics Commons^™

Market For Patents, Monopoly, And Misallocation, Shang-Jin Wei, Jianhuan Xu, Ge Yin, Xiaobo Zhang

Research Collection School Of Economics

The paper studies a possible “dark side” of patent trade in enhancing the market power of monopolists. We explore the different effects of China’s 2008 tax reform on patent innovations and sales across industries. In particular, although easier patent trade leads to more patent creation, the new patents are disproportionately connected to existing monopolists and are more likely to be acquired by them. Using an endogenous growth model with patent trade, we show that subsidizing patent trade could skew investors’ research to appeal to the monopolists, increase the latter’s monopoly power, and reduce social welfare. An optimal subsidy policy for …