Do U.S. Firms Innovate to Escape Neck-and-Neck Competition?

50 Pages Posted: 16 Aug 2019

See all articles by Chong Chen

Chong Chen

City University of Hong Kong (CityUHK)- Department of Economics & Finance

Xueping Wu

City University of Hong Kong (CityUHK) - Department of Economics & Finance

Date Written: June 28, 2019

Abstract

Yes, when product-market competition is measured explicitly by a firm’s neck-and-neckness with its competitive rivals. Using an identification strategy where major reductions in U.S. import tariffs act as exogenous shocks to competition, we show that these shocks differentially incentivized U.S. manufacturing firms to escape competition. Firms facing more neck-and-neck competition generated more patents and patent citations. They took an exploitative strategy in innovation and pursued higher-valued innovation. Difference-in-differences tests further reveal explicit channels in which the escape-competition effect occurs: it occurs among firms that had high potential for product differentiation, faced high product market threats, and adopted conservative financial policies.

Keywords: Escaping competition, Neck-and-neckness, Product market competition, Innovation, Patent, Import tariff

JEL Classification: G31, G34, L20, O30

Suggested Citation

Chen, Chong and Wu, Xueping, Do U.S. Firms Innovate to Escape Neck-and-Neck Competition? (June 28, 2019). Available at SSRN: https://ssrn.com/abstract=3436761 or http://dx.doi.org/10.2139/ssrn.3436761

Chong Chen

City University of Hong Kong (CityUHK)- Department of Economics & Finance ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

HOME PAGE: http://www.cb.cityu.edu.hk/research/student/chongchen3/

Xueping Wu (Contact Author)

City University of Hong Kong (CityUHK) - Department of Economics & Finance ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
+852 3442 7577 (Phone)
+852 3442 0195 (Fax)

HOME PAGE: http://personal.cityu.edu.hk/~efxpwu/

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