Economists have tended to focus exclusively on the costs patents impose by restricting pricecompetition. We analyze the important but overlooked role played by non-price competition. Compared to a patent monopoly, competitive firms may engage in inefficient levels of non-price competition-such as marketing-when these activities have external effects on competitors. For example, patent monopolies may price less efficiently, but market more efficiently than competitive firms. As a result, patent

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... xpiration may have smaller or negative effects on consumer welfare. We measure the empirical importance of these theoretical implications, using patent-expiration data for the US pharmaceutical industry from 1990 to 2003. Accounting for their effects on both pricing and marketing, patent expirations actually lower output by about 5 percent in the short-run, due to post-expiration reduction in marketing. In the long-run, expirations do raise output, as expected. However, the value of pharmaceutical marketing to consumers alone -even excluding its value to firms -approximately covers its cost.