Competitive environment and innovation intensity
We find a U-shaped relation between industry concentration and innovation. The relation is driven by neck-and-neck industries where firms operate with similar productivity. When industry concentration is low, innovation intensity decreases as concentration increases. However, when industry concentra...
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Published in | Global finance journal Vol. 41; pp. 44 - 59 |
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Main Authors | , , |
Format | Journal Article |
Language | English |
Published |
Elsevier Inc
01.08.2019
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Subjects | |
Online Access | Get full text |
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Summary: | We find a U-shaped relation between industry concentration and innovation. The relation is driven by neck-and-neck industries where firms operate with similar productivity. When industry concentration is low, innovation intensity decreases as concentration increases. However, when industry concentration is high, increased concentration causes industry firms to increase innovation intensity to escape competition. The U-shaped relation is more pronounced in industries where firms compete in strategic substitutes. Using tariff rate reductions as an exogenous shock to the competitive environment, firms in neck-and-neck industries and industries where firms compete in strategic substitutes respond to foreign competitive threats by increasing innovation intensity. |
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ISSN: | 1044-0283 1873-5665 |
DOI: | 10.1016/j.gfj.2019.02.002 |