This paper empirically assesses the effect of liberalisation and competition on innovation in the postal sector. The analysis is restricted to end-to-end competition. The effect on the incentives to innovate of public ownership, letter volume, and other control variables is also tested. Data on liberalisation, competition and innovation in the postal sector is collected for seventeen European countries, over ten years. Three measures are used as proxies for innovation: (1) an innovation index based on a survey conducted for this purpose; (2) the accumulated number of innovations (based on the same survey); and (3) labour productivity. We also develop a liberalisation index in order to measure the percentage of market liberalised (in terms of letter volume). Several models are estimated by GLS and using PW-PCSE. In general, the models estimated have a high explanatory power. We find evidence that market liberalisation has a positive effect on innovation and that an increase in the market share of the competitors stimulates the investment in innovation, at least until the market share of the competitors reaches a certain threshold. Letter volume is also significant and has a positive impact on innovation. GDP per capita turns out to be significant and to have a positive relationship with innovation in all the models estimated.