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Competitive environment and innovation intensity

Marcia Millon Cornett, Otgontsetseg Erhemjamts and Hassan Tehranian

Global Finance Journal, 2019, vol. 41, issue C, 44-59

Abstract: We find a U-shaped relation between industry concentration and innovation. The relation is driven by neck-and-neck industries where firms operate with similar productivity. When industry concentration is low, innovation intensity decreases as concentration increases. However, when industry concentration is high, increased concentration causes industry firms to increase innovation intensity to escape competition. The U-shaped relation is more pronounced in industries where firms compete in strategic substitutes. Using tariff rate reductions as an exogenous shock to the competitive environment, firms in neck-and-neck industries and industries where firms compete in strategic substitutes respond to foreign competitive threats by increasing innovation intensity.

Keywords: Industry concentration; Neck-and-neck industries; Strategic substitutes; R&D; Patents (search for similar items in EconPapers)
JEL-codes: D41 D42 D43 L10 L16 L21 L22 (search for similar items in EconPapers)
Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:41:y:2019:i:c:p:44-59

DOI: 10.1016/j.gfj.2019.02.002

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