Market Structure and Innovation: A Dynamic Analysis of the Global Automobile Industry / Aamir Rafique Hashmi, Johannes Van Biesebroeck.

Format:

Book

Author/Creator:

Hashmi, Aamir Rafique.

Contributor:

National Bureau of Economic Research.

Van Biesebroeck, Johannes.

Series:

Working Paper Series (National Bureau of Economic Research) no. w15959.

NBER working paper series no. w15959

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Market Structure and Innovation

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2010.

Summary:

We study the relationship between market structure and innovation in the global automobile industry from 1982 to 2004 using the dynamic industry framework of Ericson and Pakes (1995). Firms optimally choose a continuous level of innovation in a strategic and forward-looking manner, while anticipating the possibility of future mergers. We show that our estimated model predicts the data well and that changes in the modeling assumptions have a predictable effect on the key dynamic parameter -- the cost of innovation. In terms of the relationship between market structure and innovation, we find that: (1) At the firm level, there is a weakly positive relationship between a firm's price-cost margin and its innovation intensity; (2) There is no relationship between competition and innovation at the industry level in the steady state. As the industry goes through a consolidation phase, the relationship is negative if competition is measured by the inverse of markups and positive if it is measured by the inverse of concentration; (3) A key determinant of a firm's innovation intensity is its relative position in the industry in terms of knowledge stock.

Notes:

Print version record

May 2010.