The Causal Impact of Patents on Firms' Markups

Patents have a demonstrably causal effect on increasing firms' markups. This impact is evident in the boost to total sales, market share, and productivity that firms experience when introducing new, patented technologies. Notably, even when these technologies become obsolete, the legal exclusivity afforded by patents allows firms to maintain significantly higher markups. Furthermore, design patents, while lacking inherent technical merit, effectively protect the market share and sales of their holders. This research underscores that patents, through a combination of technological advancement and legal protection exceeding mere innovation, contribute significantly to high markups.