Job Market Paper
Abstract: How do firms deal with information asymmetry to reduce the transaction costs of market-based solutions? Do behavioral biases play a role in managing supplier relationships? This paper answers these questions by providing empirical evidence on how external experts serve as a relevant source of information to reduce the knowledge difference between firms and suppliers engaged in market exchanges. Analyzing the sourcing of patent prosecution services in the U.S. and using patent litigation as an exogenous source of variation in exposure to external experts evaluating litigated patents (i.e., litigating patent attorneys), this paper shows that firms exposed to patent litigation are more likely to change the sourcing of patent prosecution legal services relative to unexposed firms working with the same prosecuting law firm. Moreover, this paper finds that firms behave similarly in cases where patent weaknesses detected in litigation are associated either with actions taken by the prosecuting law firm or with actions taken by the patenting firm. This result suggests that firms may overreact to information from patent litigation. These findings advance our understanding of how outsourcing firms offset the negative effects of information asymmetries and how firms' limited ability to translate experts' opinions into information can moderate this effect.
Sharpen your Sword for Litigation: Strategic Reaction to the Threat of Entry (with Annamaria Conti and Elie Sung) Reject and Resubmit, Management Science.
Abstract: We examine the choice firms make between employing their follow-on patents in litigation to protect an existing product and using them to protect subsequent innovations. Leveraging the pharmaceutical industry’s unique characteristics, we estimate difference-in-differences models exploiting plausibly exogenous variations in the timing of competitor entry threats. We show that these firms continue to produce patents after a drug is approved by the US Food and Drug Administration (FDA) and list more of these patents in the Orange Book’s public repository once the threat of generic entry materializes via a Paragraph IV challenge. By doing so, firms prepare for litigation. The added patents are disproportionately used in litigations and appear to be effective in delaying generic market entry. The detected strategy is especially employed when highly-demanded drugs are challenged, a firm’s profitability relies on only a few drugs, these drugs have remaining patent protection, and in order to protect new chemical entities. The totality of these results show that firms use new patents to prepare for litigation and these patents can delay competitor entry.
Academy of Management Best Paper Proceedings 2022, TIM Division.
Work in Progress
Import Competition and the Demand for External Technologies
Revisiting the Effect of Patent Rights on Follow-on Innovation: Evidence from Patent Invalidations.
Strategic Use of the Markets for Patents: Evidence from the U.S. Pharmaceutical Industry (with Annamaria Conti, Matthew J. Higgins, and Elie Sung).