The Real Price of Patents

Abstract

In this thesis we seek to determine whether there exists a potential alteration or supplementation to the patent system of today. We propose the establishment of an International Organization with the sole purpose of buying and distributing patents. The method backing the thesis’ arguments is a mix of theoretical and applied microeconomics. This thesis sets out to describe (almost) all linear combinations of competitive and monopolistic market structures, where a drastic innovation with positive externalities occurs. Modelling the relevant market outcomes, we create a model focusing on the effects of a patent buyout, where the innovation creates positive externalities, and would if not bought and distributed, create a monopoly situation. Using microeconomic patent theory proposed by Kremer (1998) and Guell & Fischbaum (1995) (among others), we prove that establishing said International Organization, in theory, can lead to favorable results, by mathematically proving that the increase in social surplus can exceed the funds used to pay for the patents, for some patents with positive externalities.