Intellectual Property for Market Experimentation

Abstract

Intellectual property protects investments in the production of information, but the literature on the topic has largely neglected one type of information that intellectual property might protect: information about the market success of goods and services. A first entrant into a market often cannot prevent other firms from free-riding on information about consumer demand and market feasibility. Despite the existence of some first-mover advantages, the incentives to be the first entrant into a market may sometimes be inefficiently low, thereby giving rise to a net first-mover disadvantage and discouraging innovation. Intellectual property may counteract this inefficiency by providing market exclusivity, thus promoting earlier market entry and increasing the level of entrepreneurial activity in the economy. The goal of encouraging market experimentation helps to explain certain puzzling aspects of intellectual property doctrine and provides a coherent basis for appreciating some of the current criticisms of intellectual property rights.

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