Industrial Structure and the Nature of Innovative Activity

Abstract

A substantial portion of the increase in the output of advanced industrial nations is widely judged to have been attributable to technical progress. There is also overwhelming evidence that this progress has not occurred merely in a random manner (see, e.g. Schmookler, 1962}. Yet there is not much in the way of economic theory to explain either its rate or its direction, and particularly little that has a reasonably precise micro-economic foundation.^ This lacuna is important, because a recognition of the importance of technical progress raises serious doubts about the adequacy with which traditional micro-economic models allow one to understand the functioning of modern market economies, and to develop policy prescriptions (e.g. with respect to antitrust policy). The lacuna is also surprising, for it has become a commonplace, at least since the work of Schumpetcr (1947), that the pace of inventive and innovative activity is related to market structure. Moreover, there must be many who share the Schumpeterian belief that perfect competition is inimical to inventive activity, and that the gains from such activity more than offset the welfare loss arising from production inefficiency associated with market power.Ĥ owever, a substantial part of the recent industrial organisation literature would appear to have interpreted tests of the Schumpeterian thesis in a somewhat different manner.^ It is often argued now that industrial concentration and large size spur inventive activity. It is as though concentration is a cause of innovations.• This is a revised and expanded version of the first part of an invited paper (Dasgupta and Stiglitz, '977) presented at llie World Congress of ihe International Economic Association on Economic Growth and Resources, held in Tokyo during y 7 August

Vertical R&D Spillovers, Cooperation, Market Structure, and Innovation

“…Namely, firms 29 This is not the first study to identify instances of overspending on R&D. Suzumura (1992) finds that firms overspend 30 on R&D with no spillovers in the non-cooperative equilibrium (in a one-industry model) when the number of firms is large. Dasgupta and Stiglitz (1980) find that when demand is highly inelastic and that free entry is allowed, R&D spending may exceed the socially optimal level. Bester and Petrakis (1993), in a model of cost reduction with no spillovers, find that overinvestment in R&D may occur when goods produced by different firms are close substitutes.…”

Competitive experimentation with private information: The survivor's curse

“…Unless x is very large, in the monotonic symmetric equilibrium of a common-value war of attrition or all-pay auction, each player leaves the race much earlier than this time (x). 12 If in fact the opponent adopts strategy ; as the conjectured optimal 8 Before Reinganum (1981)'s dynamic analysis, the duplication costs e¤ect was identi…ed in the "static" models of Dasgupta and Stiglitz (1980), Loury (1979) and Lee and Wilde (1980). Baye and Hoppe (2003) show strategic equivalence between rent-seeking games, di¤erential patent races with in…nitely patient players, and games where …rms choose how many research facilities to run, and the winner is the owner of the facility with the largest random outcome.…”

Innovation or imitation? The effect of spillovers and competitive pressure on firms’ R&D strategy choice

“…Using patent data of UK manufacturing …rms, Ce…s (2003) …nds that, due to innovative e¤ort, the contribution of large …rms to aggregated industrial performance is above the industry mean. On the other hand, market concentration is also argued to have a dampening e¤ect on innovation because more intensive competition acts as an important incentive for …rms to innovate (Dasgupta & Stiglitz, 1980). Again, these theoretical arguments are supported by empirical evidence (Geroski, 1990;Blundell et al, 1999).…”