A test of the monopoly pricing hypothesis of patents

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See all articles by Gaétan de Rassenfosse

Gaétan de Rassenfosse

Ecole Polytechnique Fédérale de Lausanne

Ling Zhou

Ecole Polytechnique Fédérale de Lausanne

Date Written: December 1, 2020

Abstract

The patent system is a central tool in innovation policy. The prospect of monopolistic pricing conferred by patent protection supposedly encourages firms to innovate. However, there is scant empirical evidence supporting the existence of higher markups for patent-protected products. Using an original dataset that links a broad range of consumer products to the patents that protect them, we study the impact of patent protection on product prices. The empirical strategy exploits exogenous variations in patent status, namely the fall of the patent in the public domain after the statutory 20-year term limit is reached. We find that a loss of patent protection leads to a 7–8 percent drop in product prices. The price drop, which starts about one year before patent expiry, is larger for more important patents and is more pronounced in more competitive product markets.

Keywords: innovation, monopoly price, patent system, product, R&D incentive

JEL Classification: O31, O34, K29

Suggested Citation

de Rassenfosse, Gaétan and Zhou, Ling, A test of the monopoly pricing hypothesis of patents (December 1, 2020). Available at SSRN: https://ssrn.com/abstract=

Gaétan De Rassenfosse (Contact Author)

Ecole Polytechnique Fédérale de Lausanne ( email )

Station 5
Odyssea 1.04
1015 Lausanne, CH-1015
Switzerland

Ling Zhou

Ecole Polytechnique Fédérale de Lausanne ( email )

Station 5
1015 Lausanne
Switzerland

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