Work detail

Competition and Innovation: Revisiting the Relationship Using Alternative Measures of Rivalry

Author: Mgr. Anton Astakhov, BA
Year: 2015 - summer
Leaders: Jiří Novák M.Sc., Ph.D., Deloitte Corporate Chair
Work type: Masters
Language: English
Pages: 104
Awards and prizes:
Abstract: This study re-examines the relationship between competition and innovation in a detailed firm-level
dataset of publicly traded US companies spanning from 1975 to 2013. Using R&D expenditures, patent
counts and patent citations as the measures of innovation, and Herfindahl-Hirschman Index, Lerner
Index, Profit Elasticity and Product Market Fluidity as the proxies for competition we document a robust
positive association between the two variables, as well as strong evidence of the non-linear relationship
known as "inverted-U shape", when controlling for size, distance to technological frontier, level of
knowledge spillovers, technological opportunities and other firm- and industry-specific characteristics.
We address overdispersion in the data by using negative binomial and zero-inflated negative binomial
count data regressions, and the results are robust in these specifications. Additionally, in order to address
potential endogeneity issues, we employ a set of instruments based on the import tariff rates and the
level of Chinese import penetration, and find a weak evidence of positive relationship as well. Overall
the results strongly support the prediction of agency models, "replacement effect" and "escapecompetition
effect" about the positive influence of competition on innovation.




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