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Endogenous Market Structures and Innovation by Leaders: an Empirical Test

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  • Federico Etro

    ()
    (Department of Economics, University Of Venice Cà Foscari)

  • Dirk Czarnitzki

    (K.U. Leuven)

  • Kornelius Kraft

    (Technical University of Dortmund)

Abstract

Simple models of competition for the market with endogenous entry show that, contrary to the Arrow view, an endogenous entry threat in a market induces the average firm to invest less in R&D and the incumbent leader to invest more. We test these predictions based on a unique dataset and survey for the German manufacturing sector (the Mannheim Innovation Panel). In line with our predictions, endogenous entry threats as perceived by the firms reduce R&D intensity for the average firm, but they increase it for an incumbent leader. These results hold after a number of robustness tests with instrumental variable regressions.

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Bibliographic Info

Paper provided by Department of Economics, University of Venice "Ca' Foscari" in its series Working Papers with number 2011_04.

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Length: 350
Date of creation: 2011
Date of revision:
Handle: RePEc:ven:wpaper:2011_04

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Keywords: Endogenous market structures; innovation; leadership;

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References

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  1. Zvi Griliches & Jacques Mairesse, 1981. "Productivity and R and D at the Firm Level," NBER Working Papers 0826, National Bureau of Economic Research, Inc.
  2. Viatcheslav Vinogradov & Kresimir Zigic & Eugen Kovac, 2010. "Technological Leadership and the Persistence of Monopoly under Endogenous Entry: Static versus Dynamic Analysis," 2010 Meeting Papers, Society for Economic Dynamics 795, Society for Economic Dynamics.
  3. Douglas Staiger & James H. Stock, 1994. "Instrumental Variables Regression with Weak Instruments," NBER Technical Working Papers, National Bureau of Economic Research, Inc 0151, National Bureau of Economic Research, Inc.
  4. James H. Stock & Motohiro Yogo, 2002. "Testing for Weak Instruments in Linear IV Regression," NBER Technical Working Papers, National Bureau of Economic Research, Inc 0284, National Bureau of Economic Research, Inc.
  5. Federico Etro, 2007. "Stackelberg competition with endogenous entry," Working Papers, University of Milano-Bicocca, Department of Economics 121, University of Milano-Bicocca, Department of Economics, revised 2007.
  6. Richard Paap & Frank Kleibergen, 2004. "Generalized Reduced Rank Tests using the Singular Value Decomposition," Econometric Society 2004 Australasian Meetings, Econometric Society 195, Econometric Society.
  7. Federico Etro, 2004. "Innovation by leaders," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 114(495), pages 281-303, 04.
  8. Federico Etro, 2006. "Aggressive leaders," RAND Journal of Economics, RAND Corporation, RAND Corporation, vol. 37(1), pages 146-154, 03.
  9. Ilir Maçi & Kresimir Zigic, 2008. "Competition Policy and Market Leaders," CERGE-EI Working Papers, The Center for Economic Research and Graduate Education - Economic Institute, Prague wp375, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  10. Reinganum, Jennifer F, 1985. "Innovation and Industry Evolution," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 100(1), pages 81-99, February.
  11. Geroski, P. A., 1995. "What do we know about entry?," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 13(4), pages 421-440, December.
  12. Sutton, John, 2007. "Market Structure: Theory and Evidence," Handbook of Industrial Organization, Elsevier, Elsevier.
  13. Smith, Richard J & Blundell, Richard W, 1986. "An Exogeneity Test for a Simultaneous Equation Tobit Model with an Application to Labor Supply," Econometrica, Econometric Society, Econometric Society, vol. 54(3), pages 679-85, May.
  14. Philippe Aghion & Peter Howitt, 2009. "The Economics of Growth," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 9780262012638, December.
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Cited by:
  1. Etro Federico, 2010. "Endogenous Market Structures and Contract Theory. Delegation, principal-agent contracts, screening, franchising and tying," Working Papers, Department of Economics, University of Venice "Ca' Foscari" 2010_25, Department of Economics, University of Venice "Ca' Foscari".
  2. Michael Peneder & Martin Woerter, 2014. "Competition, R&D and innovation: testing the inverted-U in a simultaneous system," Journal of Evolutionary Economics, Springer, Springer, vol. 24(3), pages 653-687, July.
  3. Aschhoff, B. & Crass, D. & Doherr, T. & Hud, M. & Hünermund, P. & Iferd, Y. & Köhler, C. & Peters, B. & Rammer, C. & Schubert, T. & Schwiebacher, F., 2014. "Dokumentation zur Innovationserhebung 2013," ZEW Dokumentationen, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 14-01, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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