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The Effect of Entry on R&D Investment of Leaders: Theory and Empirical Evidence

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Author Info

  • Dirk Czarnitzki
  • Federico Etro

    ()

  • Kornelius Kraft

Abstract

We develop a simple model of competition for the market that shows that, contrary to the Arrow view, endogenous entry threat in a market induces the average firm to invest less in R&D and the incumbent leader to invest more than the average firm. We test these predictions with a Tobit model based on a unique dataset and survey for the German manufacturing sector (the Mannheim Innovation Panel). In line with our predictions, endogenous entry threats perceived by the firms reduce R&D intensity for the average firm, but not for an incumbent leader. Moreover, the size of the firms and their patent stocks, proxy for the protection of IPRs, are positively related to R&D intensity. These results hold after a number of robustness tests with instrumental variables.

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File URL: http://dipeco.economia.unimib.it/repec/pdf/mibwpaper163.pdf
File Function: First version, 2009
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Bibliographic Info

Paper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 163.

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Length: 67 pages
Date of creation: May 2009
Date of revision: May 2009
Handle: RePEc:mib:wpaper:163

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Keywords: R&D; Entry; Endogenous market structures; Leadership;

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Cited by:
  1. Slivko, Olga, 2012. "Innovation strategies of German firms: The effect of competition and intellectual property protection," ZEW Discussion Papers 12-089, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Slivko, Olga & Theilen, Bernd, 2011. "Innovation or Imitation? The effect of spillovers and competitive pressure on firms' R&D strategy choice," Working Papers 2072/179618, Universitat Rovira i Virgili, Department of Economics.
  3. Ilir Maçi & Kresimir Zigic, 2008. "Competition Policy and Market Leaders," CERGE-EI Working Papers wp375, The Center for Economic Research and Graduate Education - Economic Institute, Prague.

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