Market Concentration and Innovation Horizon: Evidence from the US Firms

Amjad Ali, Muhammad Bilal Afzal and Khalil Ahmad

MPRA Paper from University Library of Munich, Germany

Abstract: This study investigates how market concentration, specifically, the degree of competition within a sector impacts different innovation strategies, with particular emphasis on the distinction between long-term and short-term innovation approaches adopted by corporations. The research utilizes a dataset comprising an unbalanced panel of U.S based firms. To generate robust and valid conclusions, the analysis incorporates a suite of statistical and econometric methodologies, such as regression analysis, multicollinearity diagnostics, tests for endogeneity, and comprehensive robustness assessments. These tools are employed to examine the connection between market concentration, measured by the Herfindahl-Hirschman Index, and the innovation horizon, defined as the interval between initial research and development investments and the attainment of innovative outcomes. Furthermore, the robustness analyses confirm the reliability of the findings across various modeling specifications, providing empirical evidence that heightened market concentration correlates significantly with a reduced innovation horizon. The results reveal that firms operating in markets characterized by high concentration are inclined toward short-term innovation strategies, likely as a result of intense competitive dynamics among a limited number of dominant players striving to retain market share. These insights advance the understanding of how market structure shapes the strategic timing of innovation within firms, yielding important implications for innovation policy as well as managerial decision-making.

Keywords: Market Competition; Innovation Horizon; Firm Innovation; Herfindahl-Hirschman Index (search for similar items in EconPapers)
JEL-codes: M13 O3 (search for similar items in EconPapers)
Date: 2025
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