Working Paper: NBER ID: w27253
Authors: Ross Levine; Chen Lin; Lai Wei; Wensi Xie
Abstract: A central debate in economics concerns the relationship between competition and innovation, with some stressing that competition discourages innovation by reducing post-innovation rents and others emphasizing that more contestable markets spur currently dominant and other firms to invest more in innovation. We examine the impact of competition laws on innovation. We create a unique firm-level dataset on patenting activities that includes over 1.4 million firm-year observations, across 68 countries, from 1991 through 2015. Using a new, comprehensive dataset on competition laws, we find that more stringent competition laws are associated with increases in firms’ number of self-generated patents and the citation-impact and explorative nature of those patents. We also conduct the first examination of the relationship between competition laws and firms’ acquisition of patents from other firms. We find that competition increases patent acquisitions but lowers the ratio of acquired to self-generated patents. The results hold when using country-industry data on 186 countries over the 1888-2015 period.
Keywords: competition laws; innovation; patents; firm-level analysis
JEL Codes: K21; L4; O3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| more stringent competition laws (L49) | increase in the number of self-generated patents (O39) |
| more stringent competition laws (L49) | increase in patent citations (O34) |
| more stringent competition laws (L49) | increase in total number of patents acquired by firms (O31) |
| more stringent competition laws (L49) | reduce the ratio of acquired to self-generated patents (O36) |
| more stringent competition laws (L49) | higher proportion of explorative patents relative to exploitative patents (O36) |