Innovation: The Interplay Between Demand-Side Shock and Supply-Side Environment

•Studies the interaction between supply- and demand-side factors and its effect on innovation.•Employs a natural experiment generated by Medicare approvals for reimbursement coverage of medical devices.•Shows that a demand shock impacts innovation, which is conditional on an enabling supply-side environment.•Finds that trilateral intersection of industry, academia, and government creates the highest level of innovation.