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Are Technology-Intensive Industries More Dynamically Competitive? No and Yes

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  • Vaaler, Paul M.

    (U of Illinois at Urbana-Champaign)

  • McNamara, Gerry

    (Michigan State U)

Abstract

A growing body of research in management and related public policy fields concludes that the 1980s and 1990s saw greater dynamic competition throughout technology-intensive ("TI") industries, with wide-spread, steady increase in TI industry and business performance instability as principal consequences. We test for evidence of these consequences in a large sample of US businesses operating from 1978-1997 in 31 industries with high average R&D expenditure-to-sales ratios. In the full sample, we find no evidence of sustained increase in TI industry and business performance instability, nor any evidence of significant cross-sectional differences in performance instability between TI and non-TI industry businesses over these 20 years. For a small segment of very high-performing businesses from TI industries, however, we do uncover evidence of both significantly declining performance stability as well as evidence of significant cross-sectional differences in performance stability compared to similarly high-performing businesses from non-TI industries over 20 years. We conclude that assumptions of wide-spread, long-term increase in dynamic competition lack robust evidentiary support. It is premature to embrace and apply broadly new theoretical perspectives, management practices and public policies to TI industry competitive dynamics that may be little changed since the late 1970s. Yet, we find evidence of increasing dynamic competition within the strict boundary conditions of very high-performing TI industry businesses. Careful application of new perspectives, practices and policies within these boundary conditions may contribute significantly and substantially to explanations of business behavior and performance in TI industries.

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File URL: http://www.business.illinois.edu/Working_Papers/papers/06-0124.pdf
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Paper provided by University of Illinois at Urbana-Champaign, College of Business in its series Working Papers with number 06-0124.

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Date of creation: Dec 2006
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Handle: RePEc:ecl:illbus:06-0124

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Web page: http://www.business.uiuc.edu/Working_Papers/Main.asp
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  1. Joshua S. Gans & David H. Hsu & Scott Stern, 2000. "When Does Start-Up Innovation Spur the Gale of Creative Destruction?," NBER Working Papers 7851, National Bureau of Economic Research, Inc.
  2. Peter W Roberts, 2001. "Innovation and firm-level persistent profitability: a Schumpeterian framework," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 22(4-5), pages 239-250.
  3. Elias L. Khalil, 1997. "The Red Queen Paradox: A Proper Name for a Popular Game - Note," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 153(2), pages 411-415, June.
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  5. Ravenscraft, David J & Wagner, Curtis L, III, 1992. "The Role of the FTC's Line of Business Data in Testing and Expanding the Theory of the Firm," Journal of Law and Economics, University of Chicago Press, vol. 34(2), pages 703-39, October.
  6. David S. Evans & Richard Schmalensee, 2001. "Some Economic Aspects of Antitrust Analysis in Dynamically Competitive Industries," NBER Working Papers 8268, National Bureau of Economic Research, Inc.
  7. Anita M. McGahan & Michael E. Porter, 2002. "What Do We Know About Variance in Accounting Profitability?," Management Science, INFORMS, vol. 48(7), pages 834-851, July.
  8. Barber, Brad M. & Lyon, John D., 1996. "Detecting abnormal operating performance: The empirical power and specification of test statistics," Journal of Financial Economics, Elsevier, vol. 41(3), pages 359-399, July.
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