Cost-reducing innovation and the role of patent intermediaries in increasing market efficiency

Anupam Agrawal, Shantanu Bhattacharya, Sameer Hasija

Research output: Contribution to journalArticlepeer-review


Patent intermediaries have gained importance as non-practicing entities in the innovation domain, buying innovations from an external provider and then licensing them to practicing firms. In this study, we analyze the competition between two identical incumbent firms and a patent intermediary for the acquisition and licensing of a cost-reducing innovation developed by an external innovator. We show that the outcome of the IP acquisition and licensing game critically depends on the degree of the cost-reducing innovation. Patent intermediaries win IP rights in patent markets if the innovation is incremental. They also win the IP rights when the innovation is moderate or radical, providing they have significant efficiency advantages over incumbent firms and the uncertainty about the degree of innovation is low. We also show that patent intermediaries serve to make markets more efficient. When the innovation is incremental or moderate, they help ensure a lower cost of production and a lower price for customers, and when the innovation is radical, they help increase the profits of the incumbent firms.

Original languageEnglish (US)
Pages (from-to)173-191
Number of pages19
JournalProduction and Operations Management
Issue number2
StatePublished - Feb 1 2016


  • Cournot competition
  • cost-reducing innovation
  • degree of innovation
  • innovation management
  • patent intermediary

ASJC Scopus subject areas

  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering
  • Management of Technology and Innovation


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