Market expansion and litigation deterrence effects of patents: Evidence from Chinese exporters

Abstract

China's overseas patents grew rapidly in the past two decades at the same time as China became the world's largest exporter of merchandise goods. This paper investigates the effects of overseas patents on the volume and prices of Chinese firms' exports. We consider two channels. First, patents prevent imitation and rival entry, leading to higher quantities and prices. Second, patents reduce the likelihood of litigation and can allow firms to price more aggressively if they are keeping prices high to deter potential litigation in the export market. We find evidence of both. Both channels predict a higher quantity of exports, and we find evidence of that in the data. We also compile evidence consistent with patents allowing Chinese firms to price more aggressively (lower prices).