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 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 protection in combination with carmakers’ pricing-to-market strategies.