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Market Power and Duration of R&D Investment in a Panel of Italian Firms

Maria Bontempi, Luca Lambertini () and E. Medeossi

Working Papers from Dipartimento Scienze Economiche, Universita' di Bologna

Abstract: Studies about innovation find evidence of a positive relationship between technological advancement and firm performance, in particular when the innovative effort is continuous. This paper aims to further the analysis on the duration of R&D investment at the firm level. The contribution of this study is threefold: first, we extend M ez et al. [2014], Triguero et al. [2014] analysis for Spain to the Italian case: we use a panel of manufacturing and service companies, thus enlarging the view of R&D duration within the European countries. Secondly, from a methodological point of view, we employ both discrete- and continuous-time duration models, in order to test the Proportional Hazards (PH) assumption, i.e. the assumption that the hazard rate is equivalent over time across groups. Last, but not least, we assess whether a firm s likelihood of continuing investment in R&D depends on the market power of companies. We test alternative measures for market power: the classical price-cost margin and a new proxy for the firm demand elasticity, obtained from a specific survey question. Results are in line with the hypothesis that R&D presents considerable temporal spill overs and strong persistence, even once unobserved heterogeneity is controlled for. Also, we argue that the appropriate proxy for market power is the firm demand elasticity, and we find support for the Schumpeterian hypothesis.

JEL-codes: C23 C41 D22 G32 L10 O30 (search for similar items in EconPapers)
Date: 2016-02
New Economics Papers: this item is included in nep-com, nep-eur, nep-ind, nep-ino and nep-sbm
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