Patents increase market competition

First, I show that key features of the patent system — exclusion, transferability, disclosure, certification, standardization, and divisibility — increase transaction efficiencies and stimulate competition in the market for inventions. These properties of patents reduce transaction costs associated with transferring, licensing, cross-licensing, combining, implementing, and developing inventions. Patents give owners rights to exclude others from making, using, or selling their inventions.19 Patents help convert inventions into transferable assets, so that inventors and adopters can transact more efficiently in the market for inventions. Patents promote disclosure of inventions, which reduces costs of search and bargaining in the market for inventions. Patents provide certification of technologies, which decreases information asymmetry in the market for inventions. Patents provide standardization in IP, which reduces the costs of contracting in the market for inventions. Finally, patents allow greater divisibility of technology, which promotes modularity and increases gains from trade in the market for inventions. Patents thus generate economic benefits that are based on more efficient transactions and greater competition in the market for inventions.