This paper aims at determining the role of public support in increasing outputs from product innovations. The effects of two different policy instruments, a supply-side, i.e. R&D grants, and a demand-side one, i.e. public procurement, are studied for 15 European countries. The analysis employed 2014 CIS micro-data in a logit model, which was verified using Bayesian Model Averaging. We confirmed that both, R&D grants and public procurement matter for returns to product innovation, and public procurement outperforms the other instrument, however, the impact of grants depends on the source of funding. In-house R&D expenditure was proved to have some impact on firms' product innovation, but it is relatively weak. Furthermore, some positive effects of cooperation on returns from product innovations were confirmed. The study indicates that there is a need to transform innovation policy instruments by integrating supply-side measures with demand-side ones. More emphasis should be put on problems to be solved or functions that are missing instead of being focused on supporting a specific type of innovation. Thus, this paper provides an evidence supporting a mission-oriented (challenge-oriented) approach to innovation policy. [ABSTRACT FROM AUTHOR]

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