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Endogenous Market Structures and Innovation by Leaders: An Empirical Test

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  • Dirk Czarnitzki
  • Federico Etro
  • Kornelius Kraft

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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  • Dirk Czarnitzki & Federico Etro & Kornelius Kraft, 2014. "Endogenous Market Structures and Innovation by Leaders: An Empirical Test," Economica, London School of Economics and Political Science, vol. 81(321), pages 117-139, January.
    • Handle: RePEc:bla:econom:v:81:y:2014:i:321:p:117-139
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    Cited by:

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    2. Shastitko. Andrey (Шаститко, Андрей) & Komkova, Anastasia Andreevna (Комкова, Анастасия Андреевна) & Kurdin, Alexander (Курдин, Александр) & Shastitko, Anastasia (Шаститко, Анастасия), 2016. "Competition Policy and Incentives for Innovation [Конкурентная Политика И Стимулы К Инновационной Деятельности]," Working Papers 1447, Russian Presidential Academy of National Economy and Public Administration.
    3. Diekhof, Josefine & Cantner, Uwe, 2017. "Incumbents' responses to innovative entrants: A multi-country dynamic analysis," ZEW Discussion Papers 17-052, ZEW - Leibniz Centre for European Economic Research.
    4. Michael Peneder & Martin Woerter, 2014. "Competition, R&D and innovation: testing the inverted-U in a simultaneous system," Journal of Evolutionary Economics, Springer, vol. 24(3), pages 653-687, July.
    5. Kiedaisch, Christian, 2015. "Intellectual property rights in a quality-ladder model with persistent leadership," European Economic Review, Elsevier, vol. 80(C), pages 194-213.
    6. Federico Etro, 2014. "Some thoughts on the Sutton approach," Journal of Economics, Springer, vol. 112(2), pages 99-113, June.
    7. Keisuke Hattori & Takeshi Yoshikawa, 2016. "Free entry and social inefficiency under co-opetition," Journal of Economics, Springer, vol. 118(2), pages 97-119, June.
    8. 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 14-01, ZEW - Leibniz Centre for European Economic Research.
    9. Uwe Cantner & Josefine Diekhof, 2017. "Incumbents' Asymmetric Responses to Environmentally Friendly Entrants in the Automotive Industry," Jena Economics Research Papers 2017-004, Friedrich-Schiller-University Jena, revised 13 Jul 2017.
    10. Etro, Federico, 2011. "Endogenous market structures and contract theory: Delegation, principal-agent contracts, screening, franchising and tying," European Economic Review, Elsevier, vol. 55(4), pages 463-479, May.
    11. Ennasri, Ahmed & Willinger, Marc, 2014. "Incentives and managerial effort under competitive pressure: An experiment," Research in Economics, Elsevier, vol. 68(4), pages 324-337.
    12. Etro, Federico, 2019. "Mergers of complements and entry in innovative industries," International Journal of Industrial Organization, Elsevier, vol. 65(C), pages 302-326.
    13. Richa Shukla, 2020. "Market Structure, Entry Barriers, and Firms’ R&D Intensity: Panel Data Evidence from Electronics Goods Sector in India," Journal of Industry, Competition and Trade, Springer, vol. 20(1), pages 115-137, March.
    14. David Aristei & Michela Vecchi & Francesco Venturini, 2016. "University and inter-firm R&D collaborations: propensity and intensity of cooperation in Europe," The Journal of Technology Transfer, Springer, vol. 41(4), pages 841-871, August.
    15. Li Fang & Zhang Sheng, 2021. "Policy orientation, knowledge dynamic ability and green innovation: A mediation model based on China provincial panel data," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 39(1), pages 9-37.
    16. Grieben, Wolf-Heimo & Şener, Fuat, 2017. "Wage bargaining, trade and growth," Research in Economics, Elsevier, vol. 71(3), pages 564-587.
    17. Jiawen Chen & Linlin Liu, 2018. "Profiting from Green Innovation: The Moderating Effect of Competitive Strategy," Sustainability, MDPI, vol. 11(1), pages 1-23, December.
    18. Zhou, Junbi & Wang, Mingyue, 2023. "The role of government-industry-academia partnership in business incubation: Evidence from new R&D institutions in China," Technology in Society, Elsevier, vol. 72(C).
    19. Etro, Federico, 2019. "Monopolistic competition for the market with heterogeneous firms," Economics Letters, Elsevier, vol. 179(C), pages 9-12.
    20. Tobias Stucki & Martin Woerter, 2019. "Competitive Pressure and Diversification into Green R&D," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 55(2), pages 301-325, September.
    21. Doina Caragea & Theodor Cojoianu & Mihai Dobri & Andreas Hoepner & Oana Peia & Davide Romelli, 2024. "Competition and Innovation in the Financial Sector: Evidence from the Rise of FinTech Start-ups," Journal of Financial Services Research, Springer;Western Finance Association, vol. 65(1), pages 103-140, February.
    22. Hyungna Oh & Jong Ho Hong, 2014. "Citizens' Distrust in Government and Project Implementation in the Public Sector," Korean Economic Review, Korean Economic Association, vol. 30, pages 25-40.
    23. Greco, Marco & Grimaldi, Michele & Cricelli, Livio, 2016. "An analysis of the open innovation effect on firm performance," European Management Journal, Elsevier, vol. 34(5), pages 501-516.
    24. Balsmeier, Benjamin & Delanote, Julie, 2015. "Employment growth heterogeneity under varying intellectual property rights regimes in European transition economies: Young vs. mature innovators," Journal of Comparative Economics, Elsevier, vol. 43(4), pages 1069-1084.
    25. Karsten Wasiluk, 2014. "Imitation Induced Innovation in General Equilibrium," Working Paper Series of the Department of Economics, University of Konstanz 2014-12, Department of Economics, University of Konstanz.

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    More about this item

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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