NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Patent Rights, Product Market Reforms, and Innovation

Philippe Aghion, Peter Howitt, Susanne Prantl

NBER Working Paper No. 18854
Issued in February 2013
NBER Program(s):   EFG   PR

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.

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Document Object Identifier (DOI): 10.3386/w18854

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