IDEAS home Printed from https://ideas.repec.org/p/ven/wpaper/2011_04.html
   My bibliography  Save this paper

Endogenous Market Structures and Innovation by Leaders: an Empirical Test

Author

Listed:
  • Federico Etro

    () (Department of Economics, University Of Venice C� Foscari)

  • Dirk Czarnitzki

    (K.U. Leuven)

  • Kornelius Kraft

    (Technical University of Dortmund)

Abstract

Simple models of competition for the market with endogenous entry show that, contrary to the Arrow view, an endogenous entry threat in a market induces the average firm to invest less in R&D and the incumbent leader to invest more. We test these predictions based on a unique dataset and survey for the German manufacturing sector (the Mannheim Innovation Panel). In line with our predictions, endogenous entry threats as perceived by the firms reduce R&D intensity for the average firm, but they increase it for an incumbent leader. These results hold after a number of robustness tests with instrumental variable regressions.

Suggested Citation

  • Federico Etro & Dirk Czarnitzki & Kornelius Kraft, 2011. "Endogenous Market Structures and Innovation by Leaders: an Empirical Test," Working Papers 2011_04, Department of Economics, University of Venice "Ca' Foscari".
  • Handle: RePEc:ven:wpaper:2011_04
    as

    Download full text from publisher

    File URL: http://www.unive.it/pag/fileadmin/user_upload/dipartimenti/economia/doc/Pubblicazioni_scientifiche/working_papers/2011/WP_DSE_czarnitzki_etro_kraft_04_11.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Jennifer F. Reinganum, 1985. "Innovation and Industry Evolution," The Quarterly Journal of Economics, Oxford University Press, vol. 100(1), pages 81-99.
    2. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-351, March.
    3. Kleibergen, Frank & Paap, Richard, 2006. "Generalized reduced rank tests using the singular value decomposition," Journal of Econometrics, Elsevier, vol. 133(1), pages 97-126, July.
    4. Adelina Gschwandtner & Val E. Lambson, 2012. "Sunk Costs, Depreciation, and Industry Dynamics," The Review of Economics and Statistics, MIT Press, vol. 94(4), pages 1059-1065, November.
    5. Partha Dasgupta & Joseph Stiglitz, 1980. "Uncertainty, Industrial Structure, and the Speed of R&D," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 1-28, Spring.
    6. Newey, Whitney K., 1987. "Efficient estimation of limited dependent variable models with endogenous explanatory variables," Journal of Econometrics, Elsevier, vol. 36(3), pages 231-250, November.
    7. Zigic, Kresimir & Maçi, Ilir, 2011. "Competition policy and market leaders," Economic Modelling, Elsevier, vol. 28(3), pages 1042-1049, May.
    8. 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.
    9. Hausman, Jerry, 2015. "Specification tests in econometrics," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 38(2), pages 112-134.
    10. Philippe Aghion & Peter Howitt, 2009. "The Economics of Growth," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262012634, January.
    11. Smith, Richard J & Blundell, Richard W, 1986. "An Exogeneity Test for a Simultaneous Equation Tobit Model with an Application to Labor Supply," Econometrica, Econometric Society, vol. 54(3), pages 679-685, May.
    12. Amemiya, Takeshi, 1978. "The Estimation of a Simultaneous Equation Generalized Probit Model," Econometrica, Econometric Society, vol. 46(5), pages 1193-1205, September.
    13. James H. Stock & Motohiro Yogo, 2002. "Testing for Weak Instruments in Linear IV Regression," NBER Technical Working Papers 0284, National Bureau of Economic Research, Inc.
    14. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
    15. Daron Acemoglu & Joshua Linn, 2004. "Market Size in Innovation: Theory and Evidence from the Pharmaceutical Industry," The Quarterly Journal of Economics, Oxford University Press, vol. 119(3), pages 1049-1090.
    16. Lyons, Bruce & Matraves, Catherine & Moffatt, Peter, 2001. "Industrial Concentration and Market Integration in the European Union," Economica, London School of Economics and Political Science, vol. 68(269), pages 1-26, February.
    17. Federico Etro, 2008. "Stackelberg Competition with Endogenous Entry," Economic Journal, Royal Economic Society, vol. 118(532), pages 1670-1697, October.
    18. Zvi Griliches & Jacques Mairesse, 1981. "Productivity and R and D at the Firm Level," NBER Working Papers 0826, National Bureau of Economic Research, Inc.
    19. 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.
    20. Federico Etro, 2006. "Aggressive leaders," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 146-154, March.
    21. Geroski, P. A., 1995. "What do we know about entry?," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 421-440, December.
    22. Sutton, John, 2007. "Market Structure: Theory and Evidence," Handbook of Industrial Organization, Elsevier.
    23. Federico Etro, 2004. "Innovation by leaders," Economic Journal, Royal Economic Society, vol. 114(495), pages 281-303, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:kap:asiapa:v:34:y:2017:i:2:d:10.1007_s10490-016-9481-0 is not listed on IDEAS
    2. Diekhof, Josefine & Cantner, Uwe, 2017. "Incumbents' responses to innovative entrants: A multi-country dynamic analysis," ZEW Discussion Papers 17-052, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    3. Michael Peneder & Martin Woerter, 2014. "Competition, R&D and innovation: testing the inverted-U in a simultaneous system," Journal of Evolutionary Economics, Springer, vol. 24(3), pages 653-687, July.
    4. Kiedaisch, Christian, 2015. "Intellectual property rights in a quality-ladder model with persistent leadership," European Economic Review, Elsevier, vol. 80(C), pages 194-213.
    5. Uwe Cantner & Josefine Diekhof, 2017. "Incumbents' Asymmetric Responses to Environmentally Friendly Entrants in the Automotive Industry," Jena Economic Research Papers 2017-004, Friedrich-Schiller-University Jena, revised 13 Jul 2017.
    6. Etro, Federico, 2011. "Endogenous market structures and contract theory: Delegation, principal-agent contracts, screening, franchising and tying," European Economic Review, Elsevier, vol. 55(4), pages 463-479, May.
    7. repec:eee:reecon:v:71:y:2017:i:3:p:564-587 is not listed on IDEAS
    8. Keisuke Hattori & Takeshi Yoshikawa, 2016. "Free entry and social inefficiency under co-opetition," Journal of Economics, Springer, vol. 118(2), pages 97-119, June.
    9. Hyungna Oh & Jong Ho Hong, 2014. "Citizens' Distrust in Government and Project Implementation in the Public Sector," Korean Economic Review, Korean Economic Association, vol. 30, pages 25-40.
    10. Balsmeier, Benjamin & Delanote, Julie, 2015. "Employment growth heterogeneity under varying intellectual property rights regimes in European transition economies: Young vs. mature innovators," Journal of Comparative Economics, Elsevier, vol. 43(4), pages 1069-1084.
    11. Karsten Wasiluk, 2014. "Imitation Induced Innovation in General Equilibrium," Working Paper Series of the Department of Economics, University of Konstanz 2014-12, Department of Economics, University of Konstanz.
    12. Federico Etro, 2014. "Some thoughts on the Sutton approach," Journal of Economics, Springer, vol. 112(2), pages 99-113, June.
    13. Aschhoff, B. & Crass, D. & Doherr, T. & Hud, M. & Hünermund, P. & Iferd, Y. & Köhler, C. & Peters, B. & Rammer, C. & Schubert, T. & Schwiebacher, F., 2014. "Dokumentation zur Innovationserhebung 2013," ZEW Dokumentationen 14-01, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    14. Ennasri, Ahmed & Willinger, Marc, 2014. "Incentives and managerial effort under competitive pressure: An experiment," Research in Economics, Elsevier, vol. 68(4), pages 324-337.
    15. David Aristei & Michela Vecchi & Francesco Venturini, 2016. "University and inter-firm R&D collaborations: propensity and intensity of cooperation in Europe," The Journal of Technology Transfer, Springer, vol. 41(4), pages 841-871, August.

    More about this item

    Keywords

    Endogenous market structures; innovation; leadership;

    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

    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:ven:wpaper:2011_04. 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: (Geraldine Ludbrook). General contact details of provider: http://edirc.repec.org/data/dsvenit.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 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.

    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.