Market Structure, Innovation and Productivity: A Marriage with Chemistry

Posted: 4 Nov 2009

See all articles by Theo Roelandt

Theo Roelandt

affiliation not provided to SSRN

Martin Ruiter

affiliation not provided to SSRN

Henry van der Wiel

affiliation not provided to SSRN

Erik Brouwer

Tilburg Law and Economics Center (TILEC)

Harry van Dalen

affiliation not provided to SSRN

Date Written: 2004

Abstract

The ambiguous relationship between competition and innovation as they appear in the economics literature is discussed. Due to the ambiguity of the type of relationship (positive or negative) between these two features, the need for a more dynamic model is apparent. A review of the literature indicates that there is no straightforward relation between market structure and performance. Market structure and competition change as a result of firms' decisions regarding innovation. Furthermore, there is no single optimal market structure for one industry. Empirical evidence on competition and innovation for the Netherlands revealed that there exists a negative relationship between market share and productivity growth, and there is a significant positive correlation between competition and productivity growth. However, what these studies do not convey is the effect one factor (competition) might have on the other (innovation). The following conclusions are made: (1) competition and innovation are key determinants of productivity growth, and (2) market structure and the degree of competition vary according to firms' innovation decisions. An optimal market structure, therefore, should incorporate characteristics of the markets, technology, and other industries to portray the trade-off between competition and innovation.(NEE)

Keywords: Market structure, Market competition, Schumpeter, Joseph A., Firm growth, Market share, Innovation process, Firm productivity

Suggested Citation

Roelandt, Theo and Ruiter, Martin and van der Wiel, Henry and Brouwer, Erik and van Dalen, Harry, Market Structure, Innovation and Productivity: A Marriage with Chemistry (2004). University of Illinois at Urbana-Champaign's Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship, Available at SSRN: https://ssrn.com/abstract=1497274

Theo Roelandt (Contact Author)

affiliation not provided to SSRN

No Address Available

Martin Ruiter

affiliation not provided to SSRN

No Address Available

Henry Van der Wiel

affiliation not provided to SSRN ( email )

No Address Available

Erik Brouwer

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Harry Van Dalen

affiliation not provided to SSRN

No Address Available

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