Patents, licensing, and market structure in the chemical industry

Abstract

The strategies of rent appropriation and industry structure are inter-dependent. How firms use patents depends upon industry structure, and in turn, affects industry structure. In the 19th century, market leaders in the chemical industry combined patents and secrecy to deter entry. Within cartels, patents were used to stabilize cartels and organize technology licensing. The role of patents changed in the less concentrated post World War II markets. In bulk organic chemicals and petrochemicals, chemical producers use licensing as an important means of generating revenue from process innovations. The increased importance of technology licensing is closely related to the emergence of a class of specialized process design and engineering firms that have played an important role in the development and diffusion of process innovations.