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Innovative Activities of an Incumbent and a Potential Entrant: An Empirical Exploration of the Role of Uncertainty in Product and Process Innovations

Listed author(s):
  • Hyunbae Chun

    ()

    (Department of Economics, Sogang University, Seoul)

  • Sung-Bae Mun

    ()

By distinguishing between product and process innovations, we empirically examine how uncertainty affects the innovation activities of incumbents and potential entrants. We find that potential entrants are more innovative than are incumbents in both process and product innovations, which supports the patent race model. Further, we find that uncertainty plays a crucial role in hindering an incumbent¡¯s incentive for product innovation, but has little impact on the innovation activities of both incumbents and entrants with respect to process innovation. The results suggest that a higher uncertainty in product innovation can raise the incentive for incumbent firms to seek for cooperation with new entrants.

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File URL: ftp://163.239.156.99/wpaper/CHB_RIME_2014_06.pdf
File Function: First version, 2014
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Paper provided by Research Institute for Market Economy, Sogang University in its series Working Papers with number 1406.

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Length: 23 pages
Date of creation: 2014
Handle: RePEc:sgo:wpaper:1406
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  1. Jennifer F. Reinganum, 1985. "Innovation and Industry Evolution," The Quarterly Journal of Economics, Oxford University Press, vol. 100(1), pages 81-99.
  2. Susan Athey & Armin Schmutzler, 1995. "Product and Process Flexibility in an Innovative Environment," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 557-574, Winter.
  3. Salant, Stephen W, 1984. "Preemptive Patenting and the Persistence of Monopoly: Comment," American Economic Review, American Economic Association, vol. 74(1), pages 247-250, March.
  4. Josh Lerner, 1997. "An Empirical Exploration of a Technology Race," RAND Journal of Economics, The RAND Corporation, vol. 28(2), pages 228-247, Summer.
  5. Christopher Harris & John Vickers, 1987. "Racing with Uncertainty," Review of Economic Studies, Oxford University Press, vol. 54(1), pages 1-21.
  6. Doraszelski, Ulrich, 2003. " An R&D Race with Knowledge Accumulation," RAND Journal of Economics, The RAND Corporation, vol. 34(1), pages 20-42, Spring.
  7. Lee, Jeongsik & Kim, Byung-Cheol & Lim, Young-Mo, 2011. "Dynamic competition in technological investments: An empirical examination of the LCD panel industry," International Journal of Industrial Organization, Elsevier, vol. 29(6), pages 718-728.
  8. Czarnitzki, Dirk & Kraft, Kornelius, 2004. "An empirical test of the asymmetric models on innovative activity: who invests more into R&D, the incumbent or the challenger?," Journal of Economic Behavior & Organization, Elsevier, vol. 54(2), pages 153-173, June.
  9. Christopher Harris & John Vickers, 1985. "Perfect Equilibrium in a Model of a Race," Review of Economic Studies, Oxford University Press, vol. 52(2), pages 193-209.
  10. Joshua S. Gans & Scott Stern, 2000. "Incumbency and R&D Incentives: Licensing the Gale of Creative Destruction," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(4), pages 485-511, December.
  11. Vickers, John S, 1986. "The Evolution of Market Structure When There Is a Sequence of Innovations," Journal of Industrial Economics, Wiley Blackwell, vol. 35(1), pages 1-12, September.
  12. Yongmin Chen & Marius Schwartz, 2013. "Product Innovation Incentives: Monopoly vs. Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(3), pages 513-528, 09.
  13. Gilbert, Richard J & Newbery, David M G, 1982. "Preemptive Patenting and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 72(3), pages 514-526, June.
  14. Reinganum, Jennifer F, 1983. "Uncertain Innovation and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 73(4), pages 741-748, September.
  15. Lopez, Alberto, 2008. "Determinants of R&D cooperation: Evidence from Spanish manufacturing firms," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 113-136, January.
  16. Cockburn, Iain & Henderson, Rebecca, 1994. "Racing to Invest? The Dynamics of Competition in Ethical Drug Discovery," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 3(3), pages 481-519, Fall.
  17. Greenstein, Shane & Ramey, Garey, 1998. "Market structure, innovation and vertical product differentiation," International Journal of Industrial Organization, Elsevier, vol. 16(3), pages 285-311, May.
  18. Petri Rouvinen, 2002. "Characteristics of product and process innovators: some evidence from the Finnish innovation survey," Applied Economics Letters, Taylor & Francis Journals, vol. 9(9), pages 575-580.
  19. Fudenberg, Drew & Gilbert, Richard & Stiglitz, Joseph & Tirole, Jean, 1983. "Preemption, leapfrogging and competition in patent races," European Economic Review, Elsevier, vol. 22(1), pages 3-31, June.
  20. Mitchell, Will & Singh, Kulwant, 1992. "Incumbents' use of pre-entry alliances before expansion into new technical subfields of an industry," Journal of Economic Behavior & Organization, Elsevier, vol. 18(3), pages 347-372, August.
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