Working Paper: NBER ID: w18854
Authors: Philippe Aghion; Peter Howitt; Susanne Prantl
Abstract: Can patent protection and product market competition complement each other in enhancing incentives to innovate? In this paper, we address this question by investigating how innovation responses to a substantial policy initiative increasing product market competition interact with the strength of patent rights. We provide empirical evidence of innovation responding positively to the product market reform in industries of countries where patent rights are strong, not where these are weak. The positive response to the reform is more pronounced in industries in which innovators rely more on patenting than in other industries, and in which the scope for deterring entry through patenting is not too large. Our empirical findings are in line with step-by-step innovation models predicting that product market competition enhances innovation and, more importantly, that patent protection can complement competition in inducing innovation.
Keywords: patent rights; product market competition; innovation
JEL Codes: L1; L5; O3; O4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Stronger patent rights (O34) | Positive innovation response to product market reforms (O35) |
| Product market reform (E69) | Innovation in countries with strong patent rights (O34) |
| Product market reform (E69) | No significant effect on innovation in countries with weak patent rights (O39) |
| Strength of patent rights modifies impact of competition on innovation (O34) | Positive innovation response (O35) |
| Increased competition (L13) | Incentivizing firms to innovate (O31) |