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Incumbent innovation and domestic entry

  • Oliver Falck

    ()

  • Stephan Heblich

    ()

  • Stefan Kipar

    ()

This paper analyzes the escape-entry incentive for innovation by incumbent firms. The threat posed by the possibility of leading-edge firms entering the market influences incumbent innovation. To overcome problems of endogeneity, we apply an instrumental variable approach to analyze a rich firm-level dataset (1987-2000) for Germany. We find evidence that domestic entry has a negative effect on incumbent product innovation, which is a strong indication of new entrants’ comparative advantage in commercializing new ideas. In contrast, domestic entry has a positive effect on incumbent process innovations, an effect also known as the escape-entry effect.

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File URL: http://hdl.handle.net/10.1007/s11187-009-9219-1
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Article provided by Springer in its journal Small Business Economics.

Volume (Year): 36 (2011)
Issue (Month): 3 (April)
Pages: 271-279

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Handle: RePEc:kap:sbusec:v:36:y:2011:i:3:p:271-279
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100338

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  1. Audretsch, David B. & Falck, Oliver & Heblich, Stephan, 2011. "Who’s got the aces up his sleeve? Functional specialization of cities and entrepreneurship," Munich Reprints in Economics 20179, University of Munich, Department of Economics.
  2. Duranton, Gilles & Puga, Diego, 2001. "From Sectoral to Functional Urban Specialization," CEPR Discussion Papers 2971, C.E.P.R. Discussion Papers.
  3. Falck, Oliver, 2009. "Routinization of innovation in German manufacturing: The David - Goliath symbiosis revisited," Munich Reprints in Economics 20494, University of Munich, Department of Economics.
  4. Yukako Ono, 2002. "Outsourcing business services and the role of central administrative offices," Working Paper Series WP-02-01, Federal Reserve Bank of Chicago.
  5. Glenn Ellison & Edward L. Glaeser, 1999. "The Geographic Concentration of Industry: Does Natural Advantage Explain Agglomeration?," Harvard Institute of Economic Research Working Papers 1862, Harvard - Institute of Economic Research.
  6. Philippe Aghion & Richard Blundell & Rachel Griffith & Peter Howitt & Susanne Prantl, 2009. "The Effects of Entry on Incumbent Innovation and Productivity," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 20-32, February.
  7. Angrist, Joshua D, 2001. "Estimations of Limited Dependent Variable Models with Dummy Endogenous Regressors: Simple Strategies for Empirical Practice," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(1), pages 2-16, January.
  8. Stefan Lachenmaier, 2007. "Effects of innovation on firm performance," ifo Beiträge zur Wirtschaftsforschung, Ifo Institute for Economic Research at the University of Munich, number 28, September.
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