The Effect of Entry on R&D Investment of Leaders: Theory and Empirical Evidence
AbstractWe 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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Bibliographic InfoPaper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 163.
Length: 67 pages
Date of creation: May 2009
Date of revision: May 2009
R&D; Entry; Endogenous market structures; Leadership;
Other versions of this item:
- Czarnitzki, Dirk & Etro, Federico Gabriele & Kraft, Kornelius, 2008. "The Effect of Entry on R&D Investment of Leaders: Theory and Empirical Evidence," ZEW Discussion Papers 08-078, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
- O32 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Management of Technological Innovation and R&D
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-07-03 (All new papers)
- NEP-COM-2009-07-03 (Industrial Competition)
- NEP-CSE-2009-07-03 (Economics of Strategic Management)
- NEP-ENT-2009-07-03 (Entrepreneurship)
- NEP-IND-2009-07-03 (Industrial Organization)
- NEP-INO-2009-07-03 (Innovation)
- NEP-MIC-2009-07-03 (Microeconomics)
- NEP-TID-2009-07-03 (Technology & Industrial Dynamics)
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- Zigic, Kresimir & Maçi, Ilir, 2011.
"Competition policy and market leaders,"
Elsevier, vol. 28(3), pages 1042-1049, May.
- 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.
- 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.
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