Prizes may incentivize inventions – but are limited in their ability to scale up – suffer from the problems of rent seeking and picking winners, which make patents necessary

In theoretical terms, prizes have numerous advantages over patent protection. The actual implementation and operation of a prize system, however, complicates comparisons. 117Theoretical prizes are substitutes for patents, but prizes in action are generally complements. 118That is, as prize demand increases, prices for patents decrease. At the very least, prizes are often supplementary to patent protection. 119Complementarity, however, means that the differences between patents and prizes are slim when looking at the comparable quantum of their deadweight losses. 120For government-funded prizes, of course, the deadweight losses function differently, as they are spread out among a larger number of consumers, for instance through taxation. 121But then there is the problem of scale: prizes can incentivize the development of a new invention, but are not of a sufficient magnitude for the expense of upscaling a commercially-viable product. However, prizes are vulnerable to the criticisms of rent-seeking and picking winners that traditionally bolstered justifications for patents in the first place. 122With fine distinctions between patents and prizes, their merits should be determined on a case-by-case basis.