Market Structure and Innovation: A Dynamic Analysis of the Global Automobile Industry

Aamir Hashmi and Johannes Van Biesebroeck

No 15959, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the relationship between market structure and innovation in the global automobile industry from 1982 to 2004 using the dynamic industry framework of Ericson and Pakes (1995). Firms optimally choose a continuous level of innovation in a strategic and forward-looking manner, while anticipating the possibility of future mergers. We show that our estimated model predicts the data well and that changes in the modeling assumptions have a predictable effect on the key dynamic parameter -- the cost of innovation. In terms of the relationship between market structure and innovation, we find that: (1) At the firm level, there is a weakly positive relationship between a firm's price-cost margin and its innovation intensity; (2) There is no relationship between competition and innovation at the industry level in the steady state. As the industry goes through a consolidation phase, the relationship is negative if competition is measured by the inverse of markups and positive if it is measured by the inverse of concentration; (3) A key determinant of a firm's innovation intensity is its relative position in the industry in terms of knowledge stock.

JEL-codes: C73 L13 L62 O31 (search for similar items in EconPapers)
Date: 2010-05
Note: IO PR
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Citations: View citations in EconPapers (15)

Published as Aamir Rafique Hashmi & Johannes Van Biesebroeck, 2016. "The Relationship between Market Structure and Innovation in Industry Equilibrium: A Case Study of the Global Automobile Industry," The Review of Economics and Statistics, MIT Press, vol. 98(1), pages 192-208, March.

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Related works:
Journal Article: The Relationship between Market Structure and Innovation in Industry Equilibrium: A Case Study of the Global Automobile Industry (2016)
Working Paper: The relationship between market structure and innovation in industry equilibrium: a case study of the global automobile industry (2012)
Working Paper: Market Structure and Innovation: A Dynamic Analysis of the Global Automobile Industry (2007)
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