The effect of design protection on price and price dispersion: Evidence from automotive spare parts

Abstract

The design right is a widely used but poorly understood intellectual property right that allows the protection of products' aesthetics and outer appearances. We study the influence of design right protection on price by exploiting cross-country differences in the scope of protection in the European automotive spare parts market: In some countries, repair parts are exempted from design protection, while in others they are not. Based on detailed price data, our difference-in-differences estimates imply that design protection increases prices by about 5-8%, with large differences between carmakers. We then link our findings to the literature on deviations from the law of one price. We document large cross-country price deviations for identical spare parts and provide evidence that a part of these price deviations can be explained by the lack of harmonization of design right protection in combination with carmakers' pricing-to-market strategies.