| dc.description.abstract | A traditional view of patents and patenting shows a trade-off between the benefit of
appropriation and the cost of information revelation. However, firms may benefit
from information revelation to consumers because patents can provide credible information
about the firm’s ability to develop new technologies and produce good
quality products. In fact, we frequently observe that many firms use their patents for
promotion in a variety of industries, including foods, cosmetics, and electronic devices.
We construct a simple model to study a usage of patents in promotion activities,
a promotional patent, and investigate an advantage for a firm to employ a promotional
patent. We make two findings. First, we find a positive information value of
a promotional patent to a high-type firm. The benefit stems from an increase in the
consumers’ willingness to pay in two ways. The expected valuation to the consumers
increases because i) the patented innovation directly improves the product quality
and ii) the promotional patent increases a likelihood of the firm to be a high type.
The firm then absorbs the increase of the expected valuation. Second, the information
value to the high-type firm is non-monotonic. The information value increases
(decreases) with a prior probability that a firm is a high type when the prior probability
is low (high). | en_US |
