IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/96771.html
   My bibliography  Save this paper

Disruptive Innovation by Heterogeneous Incumbents and Economic Growth: When do incumbents switch to new technology?

Author

Listed:
  • Ohki, Kazuyoshi

Abstract

In this paper, we construct a tractable endogenous growth model to examine heterogeneous incumbents' current technology-switching behavior. Then, we examine the effects of policies such as a subsidy for innovation by incumbents, a subsidy for innovation by entrants, and the extension of patent length. Our setting suggests interesting and counterintuitive results. High quality incumbents tend to be less likely to conduct innovation, which is inconsistent with Schumpeter's hypothesis. A subsidy for innovation by entrants decreases the average quality of differentiated goods. Moreover, it may decrease the growth rate of the economy if the positive spillover of innovation from average quality production is adequately large. Aggregate innovation can be small even when the population size is large if the barriers to entry are extremely high.

Suggested Citation

  • Ohki, Kazuyoshi, 2019. "Disruptive Innovation by Heterogeneous Incumbents and Economic Growth: When do incumbents switch to new technology?," MPRA Paper 96771, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:96771
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/96771/1/MPRA_paper_96771.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Mitsuru Igami, 2017. "Estimating the Innovator’s Dilemma: Structural Analysis of Creative Destruction in the Hard Disk Drive Industry, 1981–1998," Journal of Political Economy, University of Chicago Press, vol. 125(3), pages 798-847.
    2. Angus C. Chu & Guido Cozzi & Haichao Fang & Yuichi Furukawa & Chih-Hsing Liao, 2019. "Innovation and Inequality in a Monetary Schumpeterian Model with Heterogeneous Households and Firms," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 34, pages 141-164, October.
    3. Tatsuro Iwaisako & Kazuyoshi Ohki, 2019. "Innovation by Heterogeneous Leaders," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(4), pages 1673-1704, October.
    4. Daron Acemoglu & Ufuk Akcigit, 2012. "Intellectual Property Rights Policy, Competition And Innovation," Journal of the European Economic Association, European Economic Association, vol. 10(1), pages 1-42, February.
    5. Cohen, Wesley M. & Levin, Richard C., 1989. "Empirical studies of innovation and market structure," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 18, pages 1059-1107, Elsevier.
    6. Norrbin, Stefan C, 1993. "The Relation between Price and Marginal Cost in U.S. Industry: A Contradiction," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 1149-1164, December.
    7. Jones, Charles I & Williams, John C, 2000. "Too Much of a Good Thing? The Economics of Investment in R&D," Journal of Economic Growth, Springer, vol. 5(1), pages 65-85, March.
    8. Acemoglu, Daron & Cao, Dan, 2015. "Innovation by entrants and incumbents," Journal of Economic Theory, Elsevier, vol. 157(C), pages 255-294.
    9. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    10. Kiedaisch, Christian, 2015. "Intellectual property rights in a quality-ladder model with persistent leadership," European Economic Review, Elsevier, vol. 80(C), pages 194-213.
    11. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-351, March.
    12. Ledezma, Ivan, 2013. "Defensive strategies in quality ladders," Journal of Economic Dynamics and Control, Elsevier, vol. 37(1), pages 176-194.
    13. Thompson, Peter & Waldo, Doug, 1994. "Growth and trustified capitalism," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 445-462, December.
    14. Ohki, Kazuyoshi, 2015. "Analysis of transition dynamics caused by technological breakthroughs: Cause of productivity slowdown and drop in existing firms’ stock prices," Structural Change and Economic Dynamics, Elsevier, vol. 35(C), pages 12-25.
    15. Ufuk Akcigit & William R. Kerr, 2018. "Growth through Heterogeneous Innovations," Journal of Political Economy, University of Chicago Press, vol. 126(4), pages 1374-1443.
    16. repec:dau:papers:123456789/4966 is not listed on IDEAS
    17. Dinopoulos, Elias & Segerstrom, Paul, 2010. "Intellectual property rights, multinational firms and economic growth," Journal of Development Economics, Elsevier, vol. 92(1), pages 13-27, May.
    18. Philippe Aghion & Christopher Harris & Peter Howitt & John Vickers, 2001. "Competition, Imitation and Growth with Step-by-Step Innovation," Review of Economic Studies, Oxford University Press, vol. 68(3), pages 467-492.
    19. Vincenzo Denicolò & Piercarlo Zanchettin, 2012. "Leadership Cycles in a Quality‐Ladder Model of Endogenous Growth," Economic Journal, Royal Economic Society, vol. 122(561), pages 618-650, June.
    20. Carmelo P Parello, 2019. "R&D policy and competition in a Schumpeterian growth model with heterogeneous firms," Oxford Economic Papers, Oxford University Press, vol. 71(1), pages 187-202.
    21. Tor Jakob Klette & Samuel Kortum, 2004. "Innovating Firms and Aggregate Innovation," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 986-1018, October.
    22. Federico Etro, 2004. "Innovation by leaders," Economic Journal, Royal Economic Society, vol. 114(495), pages 281-303, April.
    23. Chu, Angus C. & Cozzi, Guido & Furukawa, Yuichi & Liao, Chih-Hsing, 2017. "Inflation and economic growth in a Schumpeterian model with endogenous entry of heterogeneous firms," European Economic Review, Elsevier, vol. 98(C), pages 392-409.
    24. Susanto Basu, 1996. "Procyclical Productivity: Increasing Returns or Cyclical Utilization?," The Quarterly Journal of Economics, Oxford University Press, vol. 111(3), pages 719-751.
    25. Charles I. Jones, 1995. "Time Series Tests of Endogenous Growth Models," The Quarterly Journal of Economics, Oxford University Press, vol. 110(2), pages 495-525.
    26. Antonio Minniti & Carmelo Parello & Paul Segerstrom, 2013. "A Schumpeterian growth model with random quality improvements," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 52(2), pages 755-791, March.
    27. Peretto, Pietro F, 1998. "Technological Change and Population Growth," Journal of Economic Growth, Springer, vol. 3(4), pages 283-311, December.
    28. Mark Doms & Eric J. Bartelsman, 2000. "Understanding Productivity: Lessons from Longitudinal Microdata," Journal of Economic Literature, American Economic Association, vol. 38(3), pages 569-594, September.
    29. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 71-102, October.
    30. Segerstrom, Paul S & Zolnierek, James M, 1999. "The R&D Incentives of Industry Leaders," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(3), pages 745-766, August.
    31. Norrbin, Stefan C, 1993. "The Relation between Price and Marginal Cost in U.S. Industry: A Contradiction," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 1149-1164, December.
    32. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    33. Segerstrom, Paul S, 1998. "Endogenous Growth without Scale Effects," American Economic Review, American Economic Association, vol. 88(5), pages 1290-1310, December.
    34. Angus C. Chu & Guido Cozzi & Haichao Fang & Yuichi Furukawa & Chih-Hsing Liao, 2019. "Innovation and Inequality in a Monetary Schumpeterian Model with Heterogeneous Households and Firms," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 34, pages 141-164, October.
    35. Segerstrom, Paul S & Anant, T C A & Dinopoulos, Elias, 1990. "A Schumpeterian Model of the Product Life Cycle," American Economic Review, American Economic Association, vol. 80(5), pages 1077-1091, December.
    36. Aghion, Philippe & Harris, Christopher & Vickers, John, 1997. "Competition and growth with step-by-step innovation: An example," European Economic Review, Elsevier, vol. 41(3-5), pages 771-782, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tatsuro Iwaisako & Kazuyoshi Ohki, 2019. "Innovation by Heterogeneous Leaders," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(4), pages 1673-1704, October.
    2. Lu, You-Xun & Chen, Shi-kuan & Lai, Ching-chong, 2022. "Monetary Policy and Economic Growth in a Schumpeterian Model with Incumbents and Entrants," MPRA Paper 112177, University Library of Munich, Germany.
    3. Acemoglu, Daron & Cao, Dan, 2015. "Innovation by entrants and incumbents," Journal of Economic Theory, Elsevier, vol. 157(C), pages 255-294.
    4. Angus C. Chu & Guido Cozzi & Haichao Fang & Yuichi Furukawa & Chih-Hsing Liao, 2019. "Innovation and Inequality in a Monetary Schumpeterian Model with Heterogeneous Households and Firms," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 34, pages 141-164, October.
    5. Angus C. Chu & Yuichi Furukawa & Sushanta Mallick & Pietro Peretto & Xilin Wang, 2021. "Dynamic effects of patent policy on innovation and inequality in a Schumpeterian economy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 71(4), pages 1429-1465, June.
    6. Sener, Fuat, 2008. "R&D policies, endogenous growth and scale effects," Journal of Economic Dynamics and Control, Elsevier, vol. 32(12), pages 3895-3916, December.
    7. Lu, You-Xun & Lai, Ching-Chong, 2021. "Effects of patent policy on growth and inequality: A perspective of exogenous and endogenous quality improvements," MPRA Paper 111183, University Library of Munich, Germany.
    8. Lu, You-Xun & Chen, Shi-kuan & Lai, Ching-chong, 2022. "Subsidies, Entry, and Economic Growth in a Schumpeterian Model with Incumbents and Entrants," MPRA Paper 112179, University Library of Munich, Germany.
    9. Aghion, Philippe & Akcigit, Ufuk & Howitt, Peter, 2014. "What Do We Learn From Schumpeterian Growth Theory?," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 2, chapter 0, pages 515-563, Elsevier.
    10. Pedro Rui Mazeda Gil & Paulo Brito & Óscar Afonso, 2008. "A Model of Quality Ladders with Horizontal Entry," FEP Working Papers 296, Universidade do Porto, Faculdade de Economia do Porto.
    11. Chu, Angus C. & Cozzi, Guido & Furukawa, Yuichi & Liao, Chih-Hsing, 2017. "Inflation and economic growth in a Schumpeterian model with endogenous entry of heterogeneous firms," European Economic Review, Elsevier, vol. 98(C), pages 392-409.
    12. Bucci, Alberto & Parello, Carmelo Pierpaolo, 2009. "Horizontal innovation-based growth and product market competition," Economic Modelling, Elsevier, vol. 26(1), pages 213-221, January.
    13. Angus C. Chu, 2022. "Inflation, innovation, and growth: A survey," Bulletin of Economic Research, Wiley Blackwell, vol. 74(3), pages 863-878, July.
    14. Hwan C. Lin & L. F. Shampine, 2018. "R&D-based Calibrated Growth Models with Finite-Length Patents: A Novel Relaxation Algorithm for Solving an Autonomous FDE System of Mixed Type," Computational Economics, Springer;Society for Computational Economics, vol. 51(1), pages 123-158, January.
    15. Stadler, Manfred, 2015. "Innovation, industrial dynamics and economic growth," University of Tübingen Working Papers in Business and Economics 84, University of Tuebingen, Faculty of Economics and Social Sciences, School of Business and Economics.
    16. Klein, Michael A., 2022. "The reward and contract theories of patents in a model of endogenous growth," European Economic Review, Elsevier, vol. 147(C).
    17. Chu, Angus C. & Ning, Lei & Zhu, Dongming, 2019. "Human Capital And Innovation In A Monetary Schumpeterian Growth Model," Macroeconomic Dynamics, Cambridge University Press, vol. 23(5), pages 1875-1894, July.
    18. Ledezma, Ivan, 2013. "Defensive strategies in quality ladders," Journal of Economic Dynamics and Control, Elsevier, vol. 37(1), pages 176-194.
    19. Kiedaisch, Christian, 2015. "Intellectual property rights in a quality-ladder model with persistent leadership," European Economic Review, Elsevier, vol. 80(C), pages 194-213.
    20. Minniti, A. & Parello, C. & Segerstrom, P. S., 2008. "A Schumpeterian Growth Model with Heterogenous Firms," MPRA Paper 13674, University Library of Munich, Germany.

    More about this item

    Keywords

    Economic Growth; R&D; Firm-Heterogeneity; Innovation by Incumbents; IPR Policy;
    All these keywords.

    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
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:96771. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.