U.S. - China Innovation Competition

We examine competition in the market for innovation and show that it is distinct from the widely studied issue of competition for existing products. We introduce new measures of information gathering capacity by Chinese firms based on industry agglomeration and internet penetration, which predict actual internet downloads of U.S. firm filings by Chinese internet users. Increases in the ability of Chinese industry peers to gather knowledge through the internet are followed by reductions in R&D and subsequent patents, and corresponding increased patenting by Chinese firms. The new Chinese patents also cite the patents of U.S. firms at a high rate, consistent with direct intellectual property competition.