R&D Productivity in the Personal Computer Industry

Abstract

We empirically study the dynamics of R&D productivity by firm size over an industry's life cycle. To do this, we examine the relationship between R&D expenditures, firm size, and new product introductions at the firm level in the personal computer industry. In general, we find the following. (1) Although R&D productivity generally shows decreasing marginal returns to additional expenditures, small firms have increasing returns to R&D efforts in the introductory stage of the industry life cycle. (2) In the early part of the industry life cycle, small firms exhibit greater R&D productivity than large firms. However, this is reversed as the industry approaches maturity when large firms have higher R&D productivity than smaller firms. (3) R&D productivity generally decreases over time, indicating diminishing innovation opportunities as the industry matures. Thus, our results suggest that an advantage of size occurs in the long run as higher R&D productivity later in the industry life cycle. We argue that this higher R&D productivity may come from larger firms being able to spread their R&D expenditures over a longer product line.

Keywords: R&D Productivity, Poisson Regression

JEL Classification: O3; L0