Are intellectual property rights detrimental to innovation?∗

Intellectual property rights are legal constraints that limit entry in industries where in-cumbents are innovators. The set of legal constraints is the same for all industries, without considering that the externalities created by entry are not necessarily negative for the incum-bent or that the incumbent’s R&D expenditures can be detrimental to entrants. We show that one unique set of legal rules can foster innovation and increase total R&D expenditures in some industries and be detrimental in others. The model is illustrated by case studies from the information and communication technologies industry (software, hardware, music and videogame industries)