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

Herz, Benedikt and Mejer, Malwina (2020): 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.

• Item Type: MPRA Paper
• Language: English
• Keywords: design right, design patent, repair clause, law of one price, price dispersion, European car market, automotive aftermarket, spare parts
• Subjects: F - International Economics > F1 - Trade > F15 - Economic Integration; K - Law and Economics > K2 - Regulation and Business Law > K21 - Antitrust Law; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure ; Size Distribution of Firms; L - Industrial Organization > L6 - Industry Studies: Manufacturing > L62 - Automobiles ; Other Transportation Equipment ; Related Parts and Equipment; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O34 - Intellectual Property and Intellectual Capital

References

Allington, N. F. & Kattuman, P. A., & Waldmann, F. A. (2005). One market, one money, one price? International Journal of Central Banking, 1(3).

Arundel, A. (2001). The relative effectiveness of patents and secrecy for appropriation. Research policy, 30(4), 611-624.

Chappell, L. (2019, June 24). Top Suppliers: North America, Europe and the World. Automotive News: A supplement.

Beldiman, D., & Blanke-Roeser, C. (2017). An International Perspective on Design Protection of Visible Spare Parts. Springer.

Bellan, M. (2019, March 5). Vers une libéralisation du marché des pièces détachées automobile. Les Echos. Retrieved from http://www.lesechos.fr/economie-france/conjoncture/vers-une-liberalisation-du-marche-des-pieces-detachees-automobile-995995.

Bergin, T. & Frost L. (2018, June 3). Software and stealth: how carmakers hike spare parts prices. Reuters Technology News. Retrieved from http://www.reuters.com/article/us-autos-software-pricing-insight/software-and-stealth-how-carmakers-hike-spare-parts-prices-idUSKCN1IZ07L.

Beukel, K., Alcacer, J., & Luo, H. (2017). Effects of a unified system of Industrial Designs. In DRUID NYU Stern School of Business, New York, June 12–14, 2017.

Bild. (2019, September 26) Autoteile werden immer teurer. Bild. Retrieved from http://www.bild.de/auto/mobilitaet-reisen-motorrad/mobilitaet-und-mehr/preisanstieg-um-30-prozent-in-sechs-jahren-autoteile-immer-teurer-64956186.bild.html.

Blind, K., Edler, J., Frietsch, R., & Schmoch, U. (2016). Motives to patent: Empirical evidence from Germany. Research Policy, 35(5), 655-672.

Calvano, E., Calzolari, G., Denicolò, V., & Pastorello, S. (2019). Algorithmic pricing what implications for competition policy?. Review of Industrial Organization, 55(1), 155-171.

Cavallo, A. (2017). "Are online and offline prices similar? Evidence from large multi-channel retailers." American Economic Review, 107(1), 283-303.

Cavallo, A., Neiman, B., & Rigobon, R. (2014). Currency unions, product introductions, and the real exchange rate. The Quarterly Journal of Economics, 129(2), 529-595.

Ceglowski, J. (2003). The law of one price: Intranational evidence for Canada. Canadian Journal of Economics/Revue canadienne d'économique, 36(2), 373-400.

Crucini, M. J., & Shintani, M. (2008). Persistence in law of one price deviations: Evidence from micro-data. Journal of Monetary Economics, 55(3), 629-644.

DellaVigna, S., & Gentzkow, M. (2019). Uniform pricing in U.S. retail chains, The Quarterly Journal of Economics, 134(4), 2011–2084.

Der Spiegel. (2019, September 25). Preise für Autoersatzteile deutlich gestiegen. Retrieved from http://www.spiegel.de/auto/aktuell/auto-ersatzteile-preise-fuer-reparaturen-steigen-a-1288500.html.

Dvir, E., & Strasser, G. (2018). Does marketing widen borders? Cross-country price dispersion in the European car market. Journal of International Economics, 112, 134-149.

Engel, C., & Rogers, J. H. (1996). How wide is the border? The American Economic Review, 86(5), 1112-1125.

Engel, C., & Rogers, J. H. (2004). European product market integration after the euro, Economic Policy, 19(39), 348-384.

EPO & EUIPO (2019). IPR-intensive industries and economic performance in the European Union, Industry-level analysis report, Third edition (September 2019).

EUIPO (2020). EUIPO Design Focus 2010 to 2019 Evolution.

European Automobile Manufacturers' Association (ACEA) (2019). Report: Vehicles in use - Europe 2019. Retrieved from https://www.acea.be/uploads/publications/ACEA_Report_Vehicles_in_use-Europe_2019.pdf.

European Commission (2019) Report from the Commission to the Council and the European Parliament – Competition Enforcement in the Pharmaceutical Sector (2009-2017). Published on 28 January 2019.

European Commission (2020). Evaluation of Directive 98/71/EC of the European Parliament and of the Council of 13 October 1998 on the legal protection of designs (‘Design Directive’) and of Council Regulation (EC) No 6/2002 of 12 December 2001 on the Community designs (‘Community Design Regulation’). Commission Staff Working Document (2020), forthcoming.

Europe Economics (2015, January). The economic review of industrial rights in Europe. Retrieved from https://ec.europa.eu/growth/content/economic-review-industrial-design-europe-0_en.

European Central Bank (2002). Price level convergence and competition in the euro area. Monthly Bulletin, August 2002, 39-49.

Feenstra, R. C., Inklaar, R., & Timmer, M. P. (2015). The next generation of the Penn World Tables. American economic review, 105(10), 3150-82.

Filitz, R. & Henkel, J. & Tether B.S. (2015). Protecting aesthetic innovations? An exploration of the use of registered community designs. Research Policy, 44(6), 1192-1206.

Fischer, C. (2012). Price convergence in the EMU? Evidence from micro data. European Economic Review, 56(4), 757-776.

Galindo-Rueda, F. & Millot V. (2015). Measuring design and its role in innovation”, OECD Science, Technology and Industry Working Papers, 2015/01, OECD Publishing.

GlobalData (2017). The European Car Crash Repair Parts Market 2012 – 2022: Market size, market forecast and recommendations. Published: February 2017.

Gnirke, K. (2018, May 31). Unternehmensberatung soll Renault und Peugeot bei Preisabsprachen geholfen haben. Der Spiegel Mobilität. Retrieved from http://www.spiegel.de/auto/aktuell/accenture-verhalf-renault-und-psa-zu-milliardengewinn-bei-ersatzteilen-a-1210152.html.

Goldberg, P. K., & Verboven, F. (2004). Cross-country price dispersion in the euro era: a case study of the European car market. Economic Policy, 19(40), 484-521.

Goldberg, P. K., & Verboven, F. (2005). Market integration and convergence to the Law of One Price: evidence from the European car market. Journal of international Economics, 65(1), 49-73.

Graham, S. J., Marco, A. C., & Myers, A. F. (2018). Monetizing marks: Insights from the USPTO trademark assignment dataset. Journal of Economics & Management Strategy, 27(3), 403-432.

Hartwig, H. (2016). Spare parts under European design and trade mark law. Journal of Intellectual Property Law & Practice, 11(2), 121-129.

Haskel, J., & Wolf, H. (2001). The law of one price—a case study. Scandinavian Journal of Economics, 103(4), 545-558.

Heikkilä, J. & Peltoniemi, M. (2019). Great expectations: Learning the boundaries of design rights. Research Policy, 48(9), 1037-95.

Herz, B., & Mejer, M. (2019). Effects of the European Union trademark: Lessons for the harmonization of intellectual property systems. Research Policy, 48(7), 1841-54.

Insurance Europe (2019, February) Report on European Motor Insurance Markets.

Koggersbøl, N.L., Lisberg, N.B., Belobokov, D., Nenning, G. (2018) The Automotive Aftermarket in 2025. Trends and applications. QVARTZ. Retrieved from https://qvartz.com/media/2003/the-automotive-aftermarket-in-2025.pdf.

Kur, A., Levin, M., & Schovsbo, J. (2018). The EU design approach – a global appraisal. Cheltenham, UK: Edward Elgar Publishing.

Li, Xing, Megan MacGarvie, and Petra Moser. "Dead poets' property—how does copyright influence price?" The RAND Journal of Economics 49.1 (2018): 181-205.

Maeda, J. (2015, May 18). Have designers killed the engineering star? Interview by Emily Chang. Bloomberg video, 3:07. Retrieved from http://www.bloomberg.com/news/videos/2015-05-19/the-growing-importance-of-designers-in-silicon-valley.

Mandrescu, D. (2018, June 7). When algorithmic pricing meets concerted practices - the case of Partneo. CoRe Blog. Retrieved from https://coreblog.lexxion.eu/when-algorithmic-pricing-meets-concerted-practices-the-case-of-partneo/.

Nellis, S. (2018, June 27). Apple, Samsung settle U.S. patent dispute. Reuters Technology News. Retrieved from https://www.reuters.com/article/us-apple-samsung-elec-idUSKBN1JN2S4.

Parsley, D., & Wei, S. J. (2008). In search of a euro effect: Big lessons from a Big Mac Meal? Journal of International Money and Finance, 27(2), 260-276.

Philippin, Y. (2018, May 31). How Renault and PSA Peugeot Citroën secretly hiked global cost of spare parts by €1.5bn. Mediapart. Retrieved from https://www.mediapart.fr/en/journal/international/310518/how-renault-and-psa-peugeot-citroen-secretly-hiked-global-cost-spare-parts-15bn.

Reimers, I. (2019). Copyright and generic entry in book publishing. American Economic Journal: Microeconomics, 11(3), 257-84.

Simonovska, I. (2015). Income differences and prices of tradables: Insights from an online retailer. The Review of Economic Studies, 82(4), 1612-1656.

Sorensen, A. T. (2000). Equilibrium price dispersion in retail markets for prescription drugs. Journal of Political Economy, 108(4), 833-850.

Svensson, S., Richter, J. L., Maitre-Ekern, E., Pihlajarinne, T., Maigret, A., & Dalhammar, C. (2018). The emerging ‘right to repair’ legislation in the EU and the US. Paper presented at Going Green CAREINNOVATION 2018, Vienna, Austria.

Tarrain, F. (2019, March 29). Pièces de rechange : les prix ont encore flambé! Auto Plus. Retrieved from http://www.autoplus.fr/actualite/pieces-assurance-reparation-inflation-constructeur-1537017.html.

The Economist (2012, September 1). Apple v Samsung: iPhone, uCopy, iSue. The Economist Retrieved from http://www.economist.com/node/21561888.

USPTO (2016), USPTO Design patent report. Published in March 2016.

van Pottelsberghe, B., & Mejer, M. (2010). The London Agreement and the cost of patenting in Europe. European Journal of Law and Economics, 29(2), 211-237.

Verboven, F. (1996). International price discrimination in the European car market. The RAND Journal of Economics, 27(2), 240-268.

Verganti, R. (2009). Design driven innovation: changing the rules of competition by radically innovating what things mean. Harvard Business Press.

WIPO (2004). WIPO Intellectual Property Handbook: Policy, law and use. World Intellectual Property Organization, Geneva.

WIPO (2017). World Intellectual Property Report 2017: Intangible capital in global value chains. World Intellectual Property Organization, Geneva.

WIPO (2019). World Intellectual Property Indicators. World Intellectual Property Organization, Geneva.