Non-competes and innovation: Evidence from medical devices

Despite two decades of research on non-competes, whether non-competes promote or inhibit innovation remains an open question. The lack of consensus rests on not only the theoretical ambiguity but also the empirical limitations. Marshalling data on introductions of new medical devices as the direct measure of innovations in the medical devices industry and decomposing innovations according to their exploitative or exploratory natures, this work shows that an increase in the enforceability of noncompetes is associated with a higher rate of exploitative innovations and a lower rate of exploratory innovations. Further analysis shows that through such a shift of attention in the innovation process, an increase in the enforceability of non-competes results in a higher rate of total innovations. The implications and caveats of the enforcement of non-competes for stimulating innovation are discussed.