In a recent working paper, two European economists studied the price elasticity of demand for patents based on data from past twenty-five years. Their empirical result – the demand for patents is responsive to price, but relatively inelastic. I have created the following table showing where their result fits in the overall elasticity schema of goods and services.
Good |
Estimated Elasticity |
Description |
Salt |
0.1 |
Highly Inelastic |
Patents |
0.4 |
Inelastic |
Legal Services in General |
0.4 |
Inelastic |
Utilities |
0.4 |
Inelastic |
New Tires |
1.0 |
Moderate |
Restaurant Meals |
2.3 |
Elastic |
Chevrolet Automobiles |
4.0 |
Elastic |
Elasticity is simply a way to measure (or estimate) the how the demand for a good changes in response to a change in the price of that good. Their results essentially show that pricing mechanisms could be effective in shaping applicant behavior, but that a significant result would require a dramatic change in fees. From a historical perspective, the authors attribute at least part of the “boom” in patent filings to a relative fee reduction and generally “very inexpensive” fees. “Higher fees would … [help] reduce the upward trend in propensity to patent.”
Notes:
- Read the paper: On the Price Elasticity of Demand for Patents by Gaetan de Rassenfosse and Bruno van Pottelsberghe de la Potterie. [LINK]
- Historical data is only available for a limited range of pricing schemes. In his paper on Patent Demand Tim Wilson proposes raising the patent filing fee to $50,000 with the assumption that the demand for patents becomes more elastic as the price becomes dramatically higher.