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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Bibliographic Details
Published inGlobal finance journal Vol. 41; pp. 44 - 59
Main Authors Cornett, Marcia Millon, Erhemjamts, Otgontsetseg, Tehranian, Hassan
Format Journal Article
LanguageEnglish
Published Elsevier Inc 01.08.2019
Subjects
Industry concentration
Neck-and-neck industries
R&D
Strategic substitutes
D41
L16
R&D
Patents
D43
D42
Industry concentration
L10
L21
Neck-and-neck industries
L22
Strategic substitutes
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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.
ISSN:1044-0283
1873-5665
DOI:10.1016/j.gfj.2019.02.002