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The Effect of Entry on R&D Investment of Leaders: Theory and Empirical Evidence

Dirk Czarnitzki, Federico Etro () and Kornelius Kraft ()

No 163, Working Papers from University of Milano-Bicocca, Department of Economics

Abstract: We develop a simple model of competition for the market that shows that, contrary to the Arrow view, endogenous entry threat in a market induces the average firm to invest less in R&D and the incumbent leader to invest more than the average firm. We test these predictions with a Tobit model based on a unique dataset and survey for the German manufacturing sector (the Mannheim Innovation Panel). In line with our predictions, endogenous entry threats perceived by the firms reduce R&D intensity for the average firm, but not for an incumbent leader. Moreover, the size of the firms and their patent stocks, proxy for the protection of IPRs, are positively related to R&D intensity. These results hold after a number of robustness tests with instrumental variables.

Keywords: R&D; Entry; Endogenous market structures; Leadership (search for similar items in EconPapers)
JEL-codes: O31 O32 (search for similar items in EconPapers)
Pages: 67 pages
Date: 2009-05, Revised 2009-05
New Economics Papers: this item is included in nep-com, nep-cse, nep-ent, nep-ind, nep-ino, nep-mic and nep-tid
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Persistent link: https://EconPapers.repec.org/RePEc:mib:wpaper:163

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