Competitive Pressure and the Adoption of Complementary Innovations

Abstract

Liberalization of the European automobile distribution system in 2002 limits the ability of manufacturers to impose vertical restraints, leading to a substantial restructuring of the industry and increasing the competitive pressure among dealers. We estimate an equilibrium model of profit maximization to evaluate how dealers change their innovation strategies with this regime change. Using French data we evaluate the existence of complementarities among adoptions of innovations and the scale of production. We conclude that as firms expand their scale of production they concentrate their effort in one type of innovation only. Results are robust to the existence of unobserved heterogeneity.

A note on identification of discrete choice models for bundles and binary games

“…Indeed, we show in the supplementary appendix, via a simple example, that the joint distribution of unobservables cannot be uniquely recovered without the excluded variables, at least in our general formulation of the model. These results clarify the critical, if not surprising, need for choice-specific exclusion restrictions, something that has been exploited in some applications (e.g., Liu, Chintagunta, and Zhu (2010)) but is absent in others (e.g., Kretchsmer, Miravete, and Pernias (2012) and Hartman (2010)).…”

Revisiting the Porter Hypothesis: An Empirical Analysis of Green Innovation for the Netherlands

“…One way to avoid incoherency and incompleteness is to start from a McFadden (1973) solution by considering a multinomial choice problem based on a random utility model. This framework has been proposed more recently by Lewbel (2007) and adapted by Miravete and Pernías (2006) and Kretschmer, Miravete and Pernías (2012).…”

Is Competition Good for Innovation? A Simple Approach to an Unresolved Question

“…This is broadly consistent with the patterns exposed in Section 4.2, where I argued that increasing competition tends to increase the investments of leaders rather than those of laggards. Kretschmer et al (2008) emphasize the multi-dimensional nature of innovations: In line with the discussion in Section 6.4, they argue that competition may affect product and process innovations in different ways. More specifically, the authors consider a data set for the French automobile retail industry.…”