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The Innovation Threshold

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Author Info
Brouwer, E.
Poot, T.
Montfort, K. van (Tilburg University, Tilburg Law and Economics Center)

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Abstract

In this paper, we propose an economic model to analyse the sales out of new products. This model accounts for the fact that even among firms for which R&D is a permanent activity, a fraction of firms does not have sales of innovative products during a two-year observation period. We propose a model in which the fixed costs of introduction is a major concern in the decision making process. In a structural model we estimate the fixed costs of the market introduction of new products and explain subsequent sales of innovative products. We examine an indicator of innovative output, i.e. sales of products 'new to the firm'. We estimate fixed costs thresholds using data from the Dutch part of the Community Innovation Survey (CIS) from 1998. R&D intensity, competition and market structure have a positive impact on sales of new products. The most important factors to decrease the fixed costs threshold of introduction are product related R&D investments, R&D subsidies and knowledge spillovers. Keywords: Innovation, Product R&D, Threshold model JEL Codes: C51, L23, O30

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Paper provided by Tilburg University, Tilburg Law and Economic Center in its series Discussion Paper with number 2007-008.

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Date of creation: 2007
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Handle: RePEc:dgr:kubtil:2007008

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  1. Kamien, Morton I & Schwartz, Nancy L, 1975. "Market Structure and Innovation: A Survey," Journal of Economic Literature, American Economic Association, vol. 13(1), pages 1-37, March. [Downloadable!] (restricted)
  2. Jovanovic, Boyan & MacDonald, Glenn M, 1994. "The Life Cycle of a Competitive Industry," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 322-47, April. [Downloadable!] (restricted)
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  3. Serguei Kaniovski, 2005. "Product Differentiation and Competitive Selection," WIFO Working Papers 252, WIFO. [Downloadable!]
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  4. Julian Fennema & Wilko Letterie & Gerard Pfann, 2006. "The Timing of Investment Episodes in the Netherlands," De Economist, Springer, vol. 154(3), pages 373-388, September. [Downloadable!] (restricted)
  5. Nickell, Stephen J, 1996. "Competition and Corporate Performance," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 724-46, August. [Downloadable!] (restricted)
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  6. Bruno Cassiman & Reinhilde Veugelers, 2002. "R&D Cooperation and Spillovers: Some Empirical Evidence from Belgium," American Economic Review, American Economic Association, vol. 92(4), pages 1169-1184, September. [Downloadable!]
  7. Cohen, Wesley M & Klepper, Steven, 1996. "A Reprise of Size and R&D," Economic Journal, Royal Economic Society, vol. 106(437), pages 925-51, July. [Downloadable!] (restricted)
  8. Scherer, F M, 1992. "Schumpeter and Plausible Capitalism," Journal of Economic Literature, American Economic Association, vol. 30(3), pages 1416-33, September. [Downloadable!] (restricted)
  9. Steven Klepper & Elizabeth Graddy, 1990. "The Evolution of New Industries and the Determinants of Market Structure," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 27-44, Spring. [Downloadable!] (restricted)
  10. Steven Klepper, 2002. "Firm Survival and the Evolution of Oligopoly," RAND Journal of Economics, The RAND Corporation, vol. 33(1), pages 37-61, Spring.
  11. Richard R. Nelson, 1995. "Recent Evolutionary Theorizing about Economic Change," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 48-90, March. [Downloadable!] (restricted)
  12. Jacques Mairesse & Pierre Mohnen, 2001. "To Be or Not To Be Innovative: An Exercise in Measurement," NBER Working Papers 8644, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc. [Downloadable!]
  14. Gort, Michael & Klepper, Steven, 1982. "Time Paths in the Diffusion of Product Innovations," Economic Journal, Royal Economic Society, vol. 92(367), pages 630-53, September. [Downloadable!] (restricted)
  15. Steven Klepper & Kenneth L. Simons, 2000. "The Making of an Oligopoly: Firm Survival and Technological Change in the Evolution of the U.S. Tire Industry," Journal of Political Economy, University of Chicago Press, vol. 108(4), pages 728-760, August. [Downloadable!] (restricted)
  16. Geroski, P A & Walters, C F, 1995. "Innovative Activity over the Business Cycle," Economic Journal, Royal Economic Society, vol. 105(431), pages 916-28, July. [Downloadable!] (restricted)
  17. Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: An Inverted-U Relationship," The Quarterly Journal of Economics, MIT Press, vol. 120(2), pages 701-728, May.
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