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Firm markups and the economic value of innovation

Author

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  • Martin, Ralf
  • Solorzano Mosquera, Jenniffer
  • Thomas, Catherine
  • Verhoeven, Dennis

Abstract

We examine the relationship between firms' markups and the economic value of their innovation, including both the private value captured by the innovating firm and the knowledge spillovers that benefit other firms. Using a sample of over 14,500 EU firms and 2,400 US firms granted patents between 2005 and 2014, we find that innovation by high-markup firms is more valuable privately and also creates more external value. These associations are robust to controlling for the stock of past innovation and to estimating innovation value in various ways.

Suggested Citation

  • Martin, Ralf & Solorzano Mosquera, Jenniffer & Thomas, Catherine & Verhoeven, Dennis, 2025. "Firm markups and the economic value of innovation," LSE Research Online Documents on Economics 129003, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:129003
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    File URL: https://researchonline.lse.ac.uk/id/eprint/129003/
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    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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