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Innovation and Market Structure: An Empirical Evaluation of the 'Bounds Approach' in the Chemical Industry

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  • Marín Uribe, Pedro Luis
  • Siotis, Georges

Abstract

This Paper empirically tests the ‘bounds approach’ to industry structure proposed by Sutton ((1991), (1998)). To carry out this task, we focus on the chemical industry. Part of the novelty in this exercise is that we work on the finest possible level of disaggregation. Also, we identify demand substitutability from direct industry sources. This allows us to carefully define markets, and identify R&D intensity for each of them. Our empirical specification allows us to simultaneously test the predictions of Sutton (1991) and Sutton (1998). Our results provide strong support to Sutton’s theoretical framework.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3162.

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Date of creation: Jan 2002
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Handle: RePEc:cpr:ceprdp:3162

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Keywords: bounds approach; chemical industry; innovation; market structure;

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  1. Robinson, William T & Chiang, Jeongwen, 1996. "Are Sutton's Predictions Robust?: Empirical Insights into Advertising, R&D, and Concentration," Journal of Industrial Economics, Wiley Blackwell, vol. 44(4), pages 389-408, December.
  2. Schmalensee, Richard., 1987. "Inter-industry studies of structure and performance," Working papers 1874-87., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  3. Bresnahan, Timothy F., 1989. "Empirical studies of industries with market power," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 17, pages 1011-1057 Elsevier.
  4. Catherine Matraves, 1998. "Market Structure, R&D and Advertising in the Pharmaceutical Industry," CIG Working Papers FS IV 98-17, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  5. Davies, Stephen, 1980. "Minimum Efficient Size and Seller Concentration: An Empirical Problem," Journal of Industrial Economics, Wiley Blackwell, vol. 28(3), pages 287-301, March.
  6. Cohen, Wesley M. & Levin, Richard C., 1989. "Empirical studies of innovation and market structure," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 18, pages 1059-1107 Elsevier.
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Cited by:
  1. Pekka Ilmakunnas, 2008. "Lower Bounds of Concentration in a Small Open Economy," Review of Industrial Organization, Springer, vol. 32(1), pages 19-33, February.
  2. Catherine Matraves, 2002. "European Integration and Market Structure in the Soft Drinks Industry," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 9(3), pages 295-310.
  3. Jan Guldager J�rgensen & Philipp J.H. Schr–der, 2003. "Reductions in Real versus Tariff Barriers: The Impact on Industry Concentration," Journal of Industry, Competition and Trade, Springer, vol. 3(4), pages 251-268, December.
  4. Silvana Robone & Alberto Zanardi, 2006. "Market structure and technology: evidence from the Italian National Health Service," International Journal of Health Care Finance and Economics, Springer, vol. 6(3), pages 215-236, September.

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