Endogenous Market Structures and Innovation by Leaders: An Empirical Test

23 Pages Posted: 4 Dec 2013

See all articles by Dirk Czarnitzki

Dirk Czarnitzki

Centre for European Economic Research (ZEW); Catholic University of Leuven (KUL)

Federico Etro

Florence School of Economics and Management

Kornelius Kraft

University of Dortmund - Department of Economics; IZA Institute of Labor Economics

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Date Written: January 2014

Abstract

Models of competition for the market with endogenous market structures show that, contrary to the Arrow view, an endogenous entry threat induces the average firm to invest less in R&D and the incumbent leader to invest more. We test these predictions using a unique dataset for the German manufacturing sector (the Mannheim Innovation Panel). In line with our predictions, endogenous entry threats as perceived by the firms (in survey data) reduce R&D intensity for an 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

Czarnitzki, Dirk and Etro, Federico and Kraft, Kornelius, Endogenous Market Structures and Innovation by Leaders: An Empirical Test (January 2014). Economica, Vol. 81, Issue 321, pp. 117-139, 2014, Available at SSRN: https://ssrn.com/abstract=2362594 or http://dx.doi.org/10.1111/ecca.12061

Dirk Czarnitzki (Contact Author)

Centre for European Economic Research (ZEW) ( email )

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Germany

Catholic University of Leuven (KUL) ( email )

Faculty of Economics and Business
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Belgium
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HOME PAGE: http://www.econ.kuleuven.be/msi/faculty_members.htm

Federico Etro

Florence School of Economics and Management ( email )

Via delle Pandette 32
Firenze, Tuscany 30123
Italy

Kornelius Kraft

University of Dortmund - Department of Economics ( email )

D-44221 Dortmund
Germany
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+49 231 755-3155 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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