Working Paper: CEPR ID: DP14692
Authors: David Argente; Salom Baslandze; Douglas Hanley; Sara Moreira
Abstract: We study the relationship between patents and actual product innovation in the market,and how this relationship varies with firms' market share. We use textual analysis tocreate a new data set that links patents to products of firms in the consumer goodssector. We find that patent filings are positively associated with subsequent productinnovation by firms, but at least half of product innovation and growth comes fromfirms that never patent. We also find that market leaders use patents differently fromfollowers. Market leaders have lower product innovation rates, though they rely onpatents more. Patents of market leaders relate to higher future sales above and beyondtheir effect on product innovation, and these patents are associated with decliningproduct introduction on the part of competitors, which is consistent with the notionthat market leaders use their patents to limit competition. We then use a modelto analyze the firms' patenting and product innovation decisions. We show that theprivate value of a patent is particularly high for large firms as patents protect largemarket shares of existing products.
Keywords: innovation; patents; creative destruction; growth; productivity; patent value
JEL Codes: O3; O4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| patent filings (O34) | product innovation (O35) |
| patents from market leaders (O34) | future sales (L14) |
| patents (O34) | constrain competition (L13) |
| market leaders patenting (O34) | product introductions by competitors (L15) |
| firm size (L25) | protective patenting (O34) |
| patenting strategies (O34) | product innovation rates (O39) |