Prizes undermine the market for innovative control – they lead to weak and inefficient commercialization and follow-on innovation
Daniel F. Spulber, 2015 - Elinor Hobbs Distinguished Professor of International Business and Professor of Strategy at the Kellogg School of Management at Northwestern. “Public Prizes versus Market Prices: Should Contents Replace Patents,” 97 J. PAT. & TRADEMARK OFF. SOC'y 690 (2015). Hein Online, Accessed via University of Michigan //DH
Third, I explain that government prizes cannot achieve dynamic economic efficiency because they do not provide guidance for investment in commercialization and innovation. Public ownership and distribution of the winning technology at a zero price does not provide incentives for innovation. In contrast, investment in developing patented inventions occurs both before and after the patent is granted because a patent often covers the initial invention, development of the invention, and innovative applications, as Edmund Kitch recognized.2 5 Prices in the market for inventions guide economic decisions of inventors, innovators, producers, investors, and consumers. Market prices for inventions convey signals about seller cost and buyer willingness to pay. Market prices for inventions thus promote innovation and competition and increase both static and dynamic efficiencies. Prices are state-contingent because they reflect technological change and the features of complementary and substitute inventions. Market forces change prices without the transaction costs of establishing contingent contracts. Prices for inventions therefore guide decision making under uncertainty. The market for inventions is a market for innovative control because ownership of patented inventions not only generates residual returns but allows owners to exercise residual control over the development and application of inventions.26