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The Effects of Entry on Incumbent Innovation and Productivity Author info | Abstract | Publisher info | Download info | Related research | Statistics Aghion, Philippe
Blundell, Richard William
Griffith, Rachel
Howitt, Peter
Prantl, Susanne
Additional information is available for the following
registered author(s):
How does firm entry affect innovation incentives and productivity growth in incumbent firms? Micro-data suggests that there is heterogeneity across industries - incumbents in technologically advanced industries react positively to entry, but not in laggard industries. To explain this pattern, we introduce entry into a Schumpeterian growth model with multiple sectors which differ by their distance to the technological frontier. We show that entry threat spurs innovation incentives in technologically advanced sectors - successful innovation allows incumbents to prevent entry. In laggard sectors it discourages innovation - increased entry reduces incumbents' expected rents from innovating. We find that the empirical patterns hold using rich micro-level productivity growth and patent panel data for the UK, and controlling for the endogeneity of entry by exploiting the large number of policy reforms undertaken during the Thatcher era.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
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Keywords: entry growth innovation Other versions of this item:
Find related papers by JEL classification: D21 - Microeconomics - - Production and Organizations - - - Firm Behavior F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives
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