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A New Perspective On Industry R&D And Market Structure

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  • Chang‐Yang Lee

Abstract

This paper aims to shed some new insights on the long‐debated and both extensively and intensively explored relationship between market concentration and industry R&D intensity. In order to do so, this study develops, from a classic Dorfman‐Steiner [1954] model of firm R&D, a model of industry R&D, where consumer preference over quality and price, R&D technology, and the joint distribution of firm‐specific technological competence and market share jointly determine the level of industry R&D intensity. The joint distribution term, which reflects both the underlying distribution of firms‐specific technological competence and the strength of its link with market share, suggests that the concentration‐R&D relationship differs depending on the strength of the link or simply the appropriability of R&D in terms of market share: A positive relationship is predicted for low‐appropriability industries, where market concentration supplements low R&D appropriability, while a negative or an inverted U‐shaped relationship for high‐appropriability industries. An empirical analysis of data, disaggregated at the five‐digit SIC level, on R&D and market concentration of Korean manufacturing industries provides supportive evidence for the predictions.

Suggested Citation

  • Chang‐Yang Lee, 2005. "A New Perspective On Industry R&D And Market Structure," Journal of Industrial Economics, Wiley Blackwell, vol. 53(1), pages 101-122, March.
    • Handle: RePEc:bla:jindec:v:53:y:2005:i:1:p:101-122
    DOI: 10.1111/j.0022-1821.2005.00247.x
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    References listed on IDEAS

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    1. Cabral, Luis M. B., 2000. "Introduction to Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262032864, December.
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    Cited by:

    1. Chang-Yang Lee & Ji-Hwan Lee & Ajai S. Gaur, 2017. "Are large business groups conducive to industry innovation? The moderating role of technological appropriability," Asia Pacific Journal of Management, Springer, vol. 34(2), pages 313-337, June.
    2. Qu, Zhe & Huang, Can & Zhang, Mingqian & Zhao, Yanyun, 2013. "R&D offshoring, technology learning and R&D efforts of host country firms in emerging economies," Research Policy, Elsevier, vol. 42(2), pages 502-516.
    3. Lee, Chang-Yang, 2009. "Competition favors the prepared firm: Firms' R&D responses to competitive market pressure," Research Policy, Elsevier, vol. 38(5), pages 861-870, June.
    4. Rodriguez, Mercedes & Doloreux, David & Shearmur, Richard, 2017. "Variety in external knowledge sourcing and innovation novelty: Evidence from the KIBS sector in Spain," Technovation, Elsevier, vol. 68(C), pages 35-43.
    5. Ramiro de Elejalde & Carlos Ponce & Flavia Roldán, 2018. "Innovation and competition: evidence from Uruguayan firms," Documentos de Investigación 116, Universidad ORT Uruguay. Facultad de Administración y Ciencias Sociales.
    6. Zhi Li & Chengri Ding & Yi Niu, 2019. "Industrial structure and urban agglomeration: evidence from Chinese cities," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 63(1), pages 191-218, August.
    7. Carl Shapiro, 2011. "Competition and Innovation: Did Arrow Hit the Bull's Eye?," NBER Chapters, in: The Rate and Direction of Inventive Activity Revisited, pages 361-404, National Bureau of Economic Research, Inc.
    8. Nelson Sá, 2015. "Market concentration and persuasive advertising: a theoretical approach," Journal of Economics, Springer, vol. 114(2), pages 127-151, March.
    9. Lee, Chang-Yang, 2010. "A theory of firm growth: Learning capability, knowledge threshold, and patterns of growth," Research Policy, Elsevier, vol. 39(2), pages 278-289, March.
    10. Dong Choi & Jongeun Oh & Yeonbae Kim & Junseok Hwang, 2012. "Competition in the Korean Internet Portal Market: Network Effects, Profit, and Market Efficiency," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 40(1), pages 51-73, February.
    11. Mincheol Choi & Chang‐Yang Lee, 2020. "The Peter Pan syndrome for small and medium‐sized enterprises: Evidence from Korean manufacturing firms," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(3), pages 426-445, April.
    12. Lee, Chang-Yang, 2009. "Do firms in clusters invest in R&D more intensively? Theory and evidence from multi-country data," Research Policy, Elsevier, vol. 38(7), pages 1159-1171, September.
    13. Huang, Can & Qu, Zhe & Zhang, Mingqian & Zhao, Yanyun, 2007. "R&D offshoring and technology learning in emerging economies: Firm-level evidence from the ICT industry," MERIT Working Papers 2007-023, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    14. Roberto Alvarez & Rolando Campusano, 2014. "Does Competition Spur Innovation in Developing Countries?," Working Papers wp388, University of Chile, Department of Economics.
    15. Lee, Chang-Yang, 2018. "Geographical clustering and firm growth: Differential growth performance among clustered firms," Research Policy, Elsevier, vol. 47(6), pages 1173-1184.
    16. Chang-Yang Lee, 2012. "Learning-by-doing in R&D, knowledge threshold, and technological divide," Journal of Evolutionary Economics, Springer, vol. 22(1), pages 109-132, January.
    17. Pu‐yan Nie & Yong‐cong Yang, 2023. "Innovation and competition with human capital input," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(3), pages 1779-1785, April.
    18. Salman Ali & Syed Mizanur Rahman, 2020. "R&D Expenditure in a Competitive Landscape: A Game Theoretic Approach," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 19(1), pages 47-60, June.

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