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Competitive environment and innovation intensity

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  • Cornett, Marcia Millon
  • Erhemjamts, Otgontsetseg
  • Tehranian, Hassan

Abstract

We find a U-shaped relation between industry concentration and innovation. The relation is driven by neck-and-neck industries where firms operate with similar productivity. When industry concentration is low, innovation intensity decreases as concentration increases. However, when industry concentration is high, increased concentration causes industry firms to increase innovation intensity to escape competition. The U-shaped relation is more pronounced in industries where firms compete in strategic substitutes. Using tariff rate reductions as an exogenous shock to the competitive environment, firms in neck-and-neck industries and industries where firms compete in strategic substitutes respond to foreign competitive threats by increasing innovation intensity.

Suggested Citation

  • Cornett, Marcia Millon & Erhemjamts, Otgontsetseg & Tehranian, Hassan, 2019. "Competitive environment and innovation intensity," Global Finance Journal, Elsevier, vol. 41(C), pages 44-59.
    • Handle: RePEc:eee:glofin:v:41:y:2019:i:c:p:44-59
    DOI: 10.1016/j.gfj.2019.02.002
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    More about this item

    Keywords

    Industry concentration; Neck-and-neck industries; Strategic substitutes; R&D; Patents;
    All these keywords.

    JEL classification:

    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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