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Continuous improvement and competitive pressure in the presence of discrete innovation

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  • Arghya Ghosh

    ()
    (School of Economics, The University of New South Wales)

  • Takao Kato

    (Colgate University)

  • Hodaka Morita

    ()
    (School of Economics, The University of New South Wales)

Abstract

Does competitive pressure foster innovation? Technical progress consists of numerous small improvements made upon the existing technology continuous improvement and innovative activities aiming at entirely new technology (discrete innovation). Continuous improvement is often of limited relevance to the new technology invented by successful discrete innovation. By capturing this interplay, our model predicts that, in contrast to previous theoretical findings, an increase in competitive pressure measured by product substitutability may decrease firms' incentives to conduct continuous improvement. Continuous improvement had been regarded as an important source of strength in Japanese manufacturing until the 1980s. However, several studies have found that levels of continuous improvement have recently decreased in a number of Japanese manufacturing firms. Through field research at two Japanese firms, we demonstrate the real-world relevance and usefulness of the model which offers new insights on possible mechanisms behind the declining focus on continuous improvement in Japan.

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File URL: http://research.economics.unsw.edu.au/RePEc/papers/2012-17.pdf
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Bibliographic Info

Paper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number 2012-17.

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Length: 33 pages
Date of creation: Feb 2012
Date of revision:
Handle: RePEc:swe:wpaper:2012-17

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Related research

Keywords: Competitive pressure; continuous improvement; discrete innovation; field research; location model; product substitutability; small group activities; technical progress.;

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References

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  1. Howitt, Peter & Griffith, Rachel & Aghion, Philippe & Blundell, Richard & Bloom, Nick, 2005. "Competition and Innovation: An Inverted-U Relationship," Scholarly Articles 4481507, Harvard University Department of Economics.
  2. Howard F. Chang, 1995. "Patent Scope, Antitrust Policy, and Cumulative Innovation," RAND Journal of Economics, The RAND Corporation, vol. 26(1), pages 34-57, Spring.
  3. Sacco, Dario & Schmutzler, Armin, 2011. "Is there a U-shaped relation between competition and investment?," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 65-73, January.
  4. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  5. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
  6. Avinash Dixit, 1979. "A Model of Duopoly Suggesting a Theory of Entry Barriers," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 20-32, Spring.
  7. Carmichael, H Lorne & MacLeod, W Bentley, 2000. "Worker Cooperation and the Ratchet Effect," Journal of Labor Economics, University of Chicago Press, vol. 18(1), pages 1-19, January.
  8. Blundell, Richard & Griffith, Rachel & van Reenen, John, 1999. "Market Share, Market Value and Innovation in a Panel of British Manufacturing Firms," Review of Economic Studies, Wiley Blackwell, vol. 66(3), pages 529-54, July.
  9. Tandon, Pankaj, 1984. "Innovation, Market Structure, and Welfare," American Economic Review, American Economic Association, vol. 74(3), pages 394-403, June.
  10. Susan Athey & Armin Schmutzler, 1995. "Product and Process Flexibility in an Innovative Environment," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 557-574, Winter.
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