Competition and the Value of Innovation

51 Pages Posted: 9 Jun 2021 Last revised: 20 Sep 2022

See all articles by Muhan Hu

Muhan Hu

University of Melbourne

Date Written: September 4, 2022


I investigate how competition affects the economic value of innovation, the primary incentive for corporate R&D investments. I measure the economic value of innovation based on the changes in patenting firms' stock market value around patent issuance dates, following (Kogan et al. 2017). The economic value of innovation is higher in industries with a low level of competition. Within an industry, firms at the technological frontier or those that have relatively high pricing power enjoy higher economic returns from patents. I use a quasi-natural experimental design to compare the value of patents issued immediately before and after competition-altering events. Using horizontal M&A announcements as anti-competitive events, I show that an expected decrease in market competition leads to an increase in patent value.

Keywords: Competition, Innovation, Patent Value, R&D

JEL Classification: D40, G32, G34, O31

Suggested Citation

Hu, Muhan, Competition and the Value of Innovation (September 4, 2022). Available at SSRN: or

Muhan Hu (Contact Author)

University of Melbourne ( email )

Department of Finance
198 Berkeley Street
Melbourne, Victoria 3053

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