It is generally believed that, if weak patent protection does not affect innovation, it makes consumers and society better off compared to strong patent protection by increasing the intensity of competition. We show that this conclusion may not be valid if the innovator can take other non-production strategies, such as product differentiation, which helps to reduce the intensity of competition. Weak patent protection may reduce consumer surplus and social welfare by inducing product differentiation. We show that the type of product-market competition and the market demand function play important roles in this respect. Hence, there can be an argument for strong patent protection even if it does not affect innovation.
Mukherjee, A. (2014). Patent protection under endogenous product differentiation. Asia-Pacific Journal of Accounting and Economics, 21(1), 78-93. doi:10.1080/16081625.2014.858389