Too Big to Innovate? Scale (dis)economies and the Competition-Innovation Relationship in U.S. Banking
AbstractThis paper examines whether large U.S. banks have become ''too big to innovate''. We extend the theoretical work of Aghion et al. (2005b) by relaxing their assumption that unit costs are independent from output levels in order to investigate the effect of scale (dis)economies on the competition-innovation nexus. With our model we can derive conditions under which the innovation behavior of firms with scale diseconomies becomes more or less responsive to competitive changes. Our empirical results show that decreases in thelevel of competition lead to very large drops in innovation. Large banks, already operating beyond the minimum efficient scale, have indeed become ''too big to innovate''.
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Bibliographic InfoPaper provided by Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization in its series Research Memoranda with number 054.
Date of creation: 2010
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Web page: http://www.maastrichtuniversity.nl/web/UMPublications.htm
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-12-04 (All new papers)
- NEP-BAN-2010-12-04 (Banking)
- NEP-COM-2010-12-04 (Industrial Competition)
- NEP-CSE-2010-12-04 (Economics of Strategic Management)
- NEP-INO-2010-12-04 (Innovation)
- NEP-TID-2010-12-04 (Technology & Industrial Dynamics)
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- Christopher O’Donnell & D. Rao & George Battese, 2008. "Metafrontier frameworks for the study of firm-level efficiencies and technology ratios," Empirical Economics, Springer, vol. 34(2), pages 231-255, March.
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