Discussion Paper Details

Please find the details for DP9212 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Intellectual Property Rights and Efficient Firm Organization

Author(s): Giacomo AM Ponzetto

Publication Date: November 2012

Keyword(s): Hold-up problem, Intellectual property, Licensing, Organization, Outsourcing, Product cycle, Property rights, Spin-off and Vertical integration

Programme Area(s): Industrial Organization, International Trade and Regional Economics and Public Economics

Abstract: I provide a justification of intellectual property rights as a source of static efficiency gains in manufacturing, rather than dynamic benefits from greater innovation. I develop a property-rights model of a supply relationship with two dimensions of non- contractible investment. In equilibrium, the first best is attained if and only if ownership of tangible and intangible assets is equally protected. If IP rights are weaker, the organization of the firm is distorted and efficiency declines: the final producer must either integrate her suppliers, which prompts a decline in their investment; or else risk their defection, which entails a waste of her expertise. My model predicts a greater prevalence of vertically integrated manufacturers where IP rights are weaker, and a switch from integration to outsourcing over the product cycle. Empirical evidence on the international supply chains of multinational companies bears out both predictions. As a normative implication, I find that IP rights should be strong but narrowly defined, to protect a business without holding up non-competing derivative innovations.

For full details and related downloads, please visit:

Bibliographic Reference

Ponzetto, G. 2012. 'Intellectual Property Rights and Efficient Firm Organization'. London, Centre for Economic Policy Research.