Public Prizes versus Market Prices: Should Contests Replace Patents?

I consider whether government prizes should replace market prices for inventions. The America COMPETES Reauthorization Act of 2010 establishes a framework for government prizes I examine how antitrust and public policy towards patents should take into account the economic benefits of the market for inventions. I compare the market price system with government prize systems in terms of economic efficiency. I find that the deadweight welfare loss argument for replacing market prices with government prizes is flawed. I show how prices in the market for inventions provide state-contingent signals that guide invention, commercialization, innovation, financing, and complementary inventions. I examine how prices in the market for inventions provide indicators of technological change. I conclude that replacing market prices with government prizes would harm invention, innovation and economic growth.