Patents to Products: Product Innovation and Firm Dynamics,

We study the prevalence and implications of firms' strategic practices to patent but not commercialize new ideas. We develop a model illustrating that market leaders have higher incentives to use these practices, and we create a novel data set linking patents to products to evaluate the model's implications. We find that the degree of association between patent and product introduction is positive, on average, but smaller for market leaders. Patents of market leaders generate larger revenue premiums and greater deterrence of future product introduction by competitors, which is also consistent with leaders' strategic use of patents. Using the model, we quantify that 62% of patents do not lead to product introductions. These patents imply a 2.5% reduction in the rate of creative destruction. Our counterfactuals under different patent regimes indicate that the possibility of obtaining patent protection without product commercialization also reduces market leaders' innovation efforts, potentially reversing the benefits of the patent system as a whole.