An Empirical Test of the Asymmetric Models on Innovative Activity: Who Invests More into R&D, the Incumbent or the Challenger?

Posted: 12 Jan 2005

See all articles by Dirk Czarnitzki

Dirk Czarnitzki

Catholic University of Leuven (KUL); Centre for European Economic Research (ZEW)

Kornelius Kraft

University of Dortmund - Department of Economics; IZA Institute of Labor Economics

Abstract

We study whether the incumbent or the (potential) entrant invests more into R&D, using data of about 3500 German firms from 1992 to 1995 that explicitly asks firms for their motives in undertaking innovative activity, making it possible to take account intended, not just completed, market entry. We find that challengers invest more into R&D to enter a new market than the incumbents, making the patent racing model by Reinganum and others seem more accurate than the auction model of Gilbert and Newbery. We estimate a tobit model with selectivity to take account of the econometric problem of double censoring.

Keywords: Innovative activity, patent races, uncertainty, incumbent versus entrant, tobit with selectivity

JEL Classification: L12, O31, O32

Suggested Citation

Czarnitzki, Dirk and Czarnitzki, Dirk and Kraft, Kornelius, An Empirical Test of the Asymmetric Models on Innovative Activity: Who Invests More into R&D, the Incumbent or the Challenger?. Available at SSRN: https://ssrn.com/abstract=647401

Dirk Czarnitzki (Contact Author)

Centre for European Economic Research (ZEW) ( email )

P.O. Box 10 34 43
Mannheim, 68034
Germany

Catholic University of Leuven (KUL) ( email )

Faculty of Economics and Business
Naamsestraat 69
Leuven, 3000
Belgium
+32 16 326906 (Phone)
+32 16 325799 (Fax)

HOME PAGE: http://www.econ.kuleuven.be/msi/faculty_members.htm

Kornelius Kraft

University of Dortmund - Department of Economics ( email )

D-44221 Dortmund
Germany
+49 231 755-3152 (Phone)
+49 231 755-3155 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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