Error Costs, Ratio Tests, and Patent Antitrust Law
Document Type
Article
Publication Date
2020
ISSN
0889-938X
Publisher
Springer
Language
en-US
Abstract
This paper examines the welfare tradeoff between patent and antitrust law. Since patent and antitrust law have contradictory goals, the question that naturally arises is how one should choose between the two in instances where there is a conflict. One sensible approach to choosing between two legal standards—or between proof standards with respect to evidence—is to consider the relative costs of errors. The approach in this paper is to consider the ratio of false positives to false negatives in patent antitrust. We find that the relevant error-cost ratio for patent antitrust is the proportion of the sum of the monopoly profit and the residual consumer surplus to the deadweight loss. This error-cost ratio—for a wide range of deterministic demand functions—ranges from infinity to a low of roughly three. This suggests that patent antitrust law should err on the side of protecting innovation incentives.
Recommended Citation
Keith N. Hylton & Wendy Xu,
Error Costs, Ratio Tests, and Patent Antitrust Law
,
in
56
Review of Industrial Organization
563
(2020).
Available at:
https://doi.org/https://doi.org/10.1007/s11151-020-09761-3
