Patents and Supra‑competitive Prices: Evidence from Consumer Products

Does the loss of patent protection significantly impact product prices in consumer markets?

Understanding the relationship between patent protection and product pricing is crucial for evaluating the effectiveness of the patent system in encouraging innovation. If patents do not enable firms to maintain supra‑competitive prices, the rationale for their existence as an innovation incentive comes into question. Additionally, most existing research on this topic has focused on pharmaceuticals, leaving a gap in knowledge about other consumer products.

Utilizing an original dataset, we matched 2,778 patents to 825 products sold on Amazon. The panel dataset spans from 2011 to 2019 and includes nearly 491,336 observations. We performed econometric analyses to estimate the effect of patent expiry on product prices while controlling for factors such as product age and competitive environment.

Patent expiry is associated with an 8–10 percent drop in product prices. Specifically, our regression estimates suggest a consistent price decline of approximately 9.9 percent when patent protection is lost. Moreover, the decline is more pronounced for products related to more significant patents, indicating that the importance of the patent contributes to pricing power.

• Original dataset linking 2,778 patents to 825 products, tracked across 491,336 observations during 2011 to 2019.

• Patent expiry is exogenous to market conditions and product quality.
• The effect of patent expiry on price is isolated from trends related to product age and model displacement.