Competitive Environment and Innovation Intensity

45 Pages Posted: 17 Apr 2019

See all articles by Marcia Millon Cornett

Marcia Millon Cornett

Bentley University - Department of Finance

Otgontsetseg Erhemjamts

Bentley University - Department of Finance; Bentley University

Hassan Tehranian

Boston College - Department of Finance

Date Written: February 2019

Abstract

We find a U-shaped relation between industry concentration and innovation. The relation is driven by neck-and-neck industries where firms operate with similar productivity. When industry concentration is low, innovation intensity decreases as concentration increases. However, when industry concentration is high, increased concentration causes industry firms to increase innovation intensity to escape competition. The U-shaped relation is more pronounced in industries where firms compete in strategic substitutes. Using tariff rate reductions as an exogenous shock to the competitive environment, firms in neck-and-neck industries and industries where firms compete in strategic substitutes respond to foreign competitive threats by increasing innovation intensity.

Keywords: Industry Concentration, Neck-and-Neck Industries, Strategic Substitutes, R&D, Patents

JEL Classification: D41, D42, D43, L10, L16, L21, L22

Suggested Citation

Cornett, Marcia Millon and Erhemjamts, Otgontsetseg and Tehranian, Hassan, Competitive Environment and Innovation Intensity (February 2019). Global Finance Journal, Vol. 41, 2019, Available at SSRN: https://ssrn.com/abstract=3356117

Marcia Millon Cornett

Bentley University - Department of Finance ( email )

175 Forest Street
Waltham, MA 02154
United States

Otgontsetseg Erhemjamts (Contact Author)

Bentley University - Department of Finance ( email )

175 Forest Street
Waltham, MA 02154
United States
781-891-2823 (Phone)

Bentley University ( email )

175 Forest Street
Waltham, MA 02145
United States
781-891-2823 (Phone)
781-891-2896 (Fax)

Hassan Tehranian

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States
617-552-3944 (Phone)
617-552-0431 (Fax)

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