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IPR protection and markup in China: Balancing innovation incentives and markup distortions

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  • Wang, Lihao
  • Chai, Jiwen
  • Nie, Song
  • Han, Shangrong

Abstract

In the context of rising markups worldwide, this study examines the role of intellectual property rights (IPR) protection in influencing firm-level markups and the mechanisms underlying this effect. Theoretically, we show that stronger IPR protection enhances firms’ innovation incentives, thereby increasing their pricing power. Empirically, using a quasinatural experiment and firm-level data from Chinese A-share-listed companies (2001–2020), we find that more robust IPR policies significantly increase patenting, citations and intangible assets—evidence of enhanced innovation. These policies also lead to higher markups, indicating increased market power. The effects are greater among high-tech and large firms. Results remain robust to a range of sensitivity checks and endogeneity concerns. Our findings reveal a key trade-off: while IPR reforms promote innovation, they may also distort competition through markup inflation. Therefore, policymakers should balance innovation incentives with measures to preserve market contestability, particularly in the increasingly intangible economy.

Suggested Citation

  • Wang, Lihao & Chai, Jiwen & Nie, Song & Han, Shangrong, 2026. "IPR protection and markup in China: Balancing innovation incentives and markup distortions," Economic Modelling, Elsevier, vol. 156(C).
    • Handle: RePEc:eee:ecmode:v:156:y:2026:i:c:s0264999326000179
    DOI: 10.1016/j.econmod.2026.107488
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