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An empirical test of the asymmetric models on innovative activity: who invests more into R&D - the incumbent or the challenger?

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  • Czarnitzki, Dirk
  • Kraft, Kornelius

Abstract

The theoretical discussion concerning the question whether the incumbent or the (potential) entrant invests more into R&D has attracted considerable interest. This paper reports the results of an empirical study on this question using data of about 3500 German firms over the years 1992 to 1995. The survey explicitly asks the firms for their motives to undertake innovative activity. It is thus possible to take account of intended, not just completed, market entry. It turns out that the challenger invests more into R&D in order to enter a new market than the incumbent. Thus, the patent racing model by Reinganum and others seems to characterize innovative activity more accurately than the competing auction model of Gilbert and Newbery. We use a heteroscedastic tobit as well as a tobit model with selectivity in order to deal with the econometric problems of double censoring. --

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Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 00-10.

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Date of creation: 2000
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Handle: RePEc:zbw:zewdip:5285

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Keywords: Innovative Activity; Patent Races; Uncertainty; Incumbent versus Entrant; Tobit with Selectivity;

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  1. Jensen, Richard & Thursby, Marie, 1996. "Patent Races, Product Standards, and International Competition," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(1), pages 21-49, February.
  2. Lee, Tom & Wilde, Louis L, 1980. "Market Structure and Innovation: A Reformulation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 94(2), pages 429-36, March.
  3. Reinganum, Jennifer F, 1985. "Innovation and Industry Evolution," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 100(1), pages 81-99, February.
  4. Acs, Zoltan J & Audretsch, David B, 1988. "Innovation in Large and Small Firms: An Empirical Analysis," American Economic Review, American Economic Association, American Economic Association, vol. 78(4), pages 678-90, September.
  5. 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, Wiley Blackwell, vol. 66(3), pages 529-54, July.
  6. Reinganum, Jennifer F, 1984. "Practical Implications of Game Theoretic Models of R&D," American Economic Review, American Economic Association, American Economic Association, vol. 74(2), pages 61-66, May.
  7. Katz, Michael L & Shapiro, Carl, 1987. "R&D Rivalry with Licensing or Imitation," American Economic Review, American Economic Association, American Economic Association, vol. 77(3), pages 402-20, June.
  8. Kyle Bagwell & Robert W. Staiger, 1990. "The Sensitivity of Strategic and Corrective R&D Policy in Battles for Monopoly," NBER Working Papers 3235, National Bureau of Economic Research, Inc.
  9. Reinganum, Jennifer F, 1983. "Uncertain Innovation and the Persistence of Monopoly," American Economic Review, American Economic Association, American Economic Association, vol. 73(4), pages 741-48, September.
  10. Gilbert, Richard J & Newbery, David M G, 1982. "Preemptive Patenting and the Persistence of Monopoly," American Economic Review, American Economic Association, American Economic Association, vol. 72(3), pages 514-26, June.
  11. Salant, Stephen W, 1984. "Preemptive Patenting and the Persistence of Monopoly: Comment," American Economic Review, American Economic Association, American Economic Association, vol. 74(1), pages 247-50, March.
  12. Ham, John C, 1982. "Estimation of a Labour Supply Model with Censoring Due to Unemployment and Underemployment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 49(3), pages 335-54, July.
  13. Honore, Bo E, 1992. "Trimmed LAD and Least Squares Estimation of Truncated and Censored Regression Models with Fixed Effects," Econometrica, Econometric Society, Econometric Society, vol. 60(3), pages 533-65, May.
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Cited by:
  1. Czarnitzki, Dirk & Hanel, Petr & Rosa, Julio Miguel, 2004. "Evaluating the Impact of R&D Tax Credits on Innovation: A Microeconometric Study on Canadian Firms," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 04-77, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Linda R. Cohen & Jun Ishii, 2005. "Competition, Innovation and Racing for Priority at the U.S. Patent and Trademark Office," Working Papers 050604, University of California-Irvine, Department of Economics.
  3. Grimpe, Christoph & Hussinger, Katrin, 2008. "Pre-empting technology competition through firm acquisitions," Economics Letters, Elsevier, Elsevier, vol. 100(2), pages 189-191, August.
  4. Sen, Debapriya & Stamatopoulos, Giorgos, 2009. "Drastic innovations and multiplicity of optimal licensing policies," Economics Letters, Elsevier, Elsevier, vol. 105(1), pages 7-10, October.
  5. Andreas Ziegler, 2008. "Disentangling Specific Subsets of Innovations : A Micro-Econometric Analysis of their Determinants," CER-ETH Economics working paper series 08/100, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  6. Koski, Heli, 2008. "Public R&D Funding and Entrepreneurial Innovation," Discussion Papers, The Research Institute of the Finnish Economy 1142, The Research Institute of the Finnish Economy.
  7. Heli Koski & Tobias Kretschmer, 2007. "Innovation and Dominant Design in Mobile Telephony," Industry and Innovation, Taylor & Francis Journals, Taylor & Francis Journals, vol. 14(3), pages 305-324.
  8. Volker Zimmermann, 2003. "Innovationsaktivitäten von kmU im verarbeitenden Gewerbe: Was zeichnet Imitatoren und originäre Innovatoren aus?," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 03-37, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  9. Czarnitzki, Dirk & Kraft, Kornelius, 2005. "License Expenditures of Incumbents and Potential Entrants: An Empirical Analysis of Firm Behavior," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 05-35, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  10. Heger, Diana, 2004. "The Link Between Firms? Innovation Decision and the Business Cycle: An Empirical Analysis," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 04-85, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  11. Steinmetz, Alexander, 2010. "Competition, innovation, and the effect of knowledge accumulation," W.E.P. - Würzburg Economic Papers 81, University of Würzburg, Chair for Monetary Policy and International Economics.
  12. Keiichi Shima, 2011. "The link between R&D investment and market structure: evidence from Japan," Economics Bulletin, AccessEcon, vol. 31(2), pages 1706-1716.

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