nep-tid New Economics Papers
on Technology and Industrial Dynamics
Issue of 2008‒03‒25
five papers chosen by
Rui Baptista
Technical University of Lisbon

  1. The Relationship between Knowledge Intensity and Market Concentration in European Industries: An inverted U-Shape By Niels Krap; Johannes Stephan
  2. R&D and market structure in a horizontal differentiation framework By Davide Fantino
  3. Monopoly and the Incentive to Innovate When Adoption Involves Switchover Disruptions By Thomas J. Holmes; David K. Levine; James A. Schmitz, Jr.
  4. Evolution of the knowledge base in knowledge intensive sectors By Jackie Krafft; Francesco Quatraro; Paolo Saviotti
  5. Patent, Inequality and Innovation-Driven Growth By Hatipoglu, Ozan

  1. By: Niels Krap; Johannes Stephan
    Abstract: This paper is motivated by the European Union strategy to secure competitiveness for Europe in the globalising world by focussing on technological supremacy (the Lisbon - agenda). Parallel to that, the EU Commission is trying to take a more economic approach to competition policy in general and anti-trust policy in particular. Our analysis tries to establish the relationship between increasing knowledge intensity and the resulting market concentration: if the European Union economy is gradually shifting to a pattern of sectoral specialisation that features a bias on knowledge intensive sectors, then this may well have some influence on market concentration and competition policy would have to adjust not to counterfeit the Lisbon-agenda. Following a review of the available theoretical and empirical literature on the relationship between knowledge intensity and market structure, we use a larger Eurostat database to test the shape of this relationship. Assuming a causality that runs from knowledge to concentration, we show that the relationship between knowledge intensity and market structures is in fact different for knowledge intensive industries and we establish a non-linear, inverted U-curve shape.
    Keywords: market structure, knowledge intensity, competition policy
    JEL: L16 L40 O33
    Date: 2008–03
  2. By: Davide Fantino (Bank of Italy, branch of Turin)
    Abstract: This paper examines the dynamic interaction between R&D and market structure in a horizontally differentiated market framework. Firms invest in R&D to modify the level of differentiation of their products, increasing their specialization and their market power. The invested resources in research are declining over time because of decreasing returns from further specialization. Prices, output and short-run profits of the firms producing differentiated products increase and move towards the higher steady state values, while production of the non-differentiated good falls; the number of firms is constant in all periods. The increasing specialization of varieties improves the overall utility of consumers. The comparison with the socially optimal solution shows that firms underinvest in R&D. Firms do not internalize the effects of their research effort on the overall level of substitutability of the other varieties and on the profits of the other firms.
    Keywords: R&D, market power, horizontal differentiation
    JEL: O3
    Date: 2008–01
  3. By: Thomas J. Holmes; David K. Levine; James A. Schmitz, Jr.
    Abstract: When considering the incentive of a monopolist to adopt an innovation, the textbook model assumes that it can instantaneously and seamlessly introduce the new technology. In fact, firms often face major problems in integrating new technologies. In some cases, firms have to (temporarily) produce at levels substantially below capacity upon adoption. We call such phenomena switchover disruptions, and present extensive evidence on them. If firms face switchover disruptions, then they may temporarily lose some unit sales upon adoption. If the firm loses unit sales, then a cost of adoption is the foregone rents on the sales of those units. Hence, greater market power will mean higher prices on those lost units of output, and hence a reduced incentive to innovate. We introduce switchover disruptions into some standard models in the literature, show they can overturn some famous results, and then show they can help explain evidence that firms in more competitive environments are more likely to adopt technologies and increase productivity.
    JEL: L10 L12
    Date: 2008–03
  4. By: Jackie Krafft (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - CNRS : UMR6227 - Université de Nice Sophia-Antipolis); Francesco Quatraro (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - CNRS : UMR6227 - Université de Nice Sophia-Antipolis); Paolo Saviotti (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - CNRS : UMR6227 - Université de Nice Sophia-Antipolis)
    Abstract: In a knowledge based society the creation and utilisation of knowledge become the key factors determining the competitiveness of firms, regions and countries. In this perspective a considerable effort is today dedicated to characterise the knowledge base of different sectors in the economy and to detect its impact on firm performance and on industrial organization (Breschi, Lissoni, and Malerba, 2003; Krafft, 2004; Nesta and Saviotti, 2005). Although all sectors in modern economies are affected by a growing knowledge intensity, some sectors are influenced more than the average. We call these Knowledge Intensive Sectors (KISs). In this paper we map the dynamics of knowledge generation within three KISs: biotechnology, telecommunications and electronics. The first question which is addressed is how to characterize a KIS. Typically we would expect KISs to have a high R&D intensity, to produce more patents and publications than less knowledge intensive sectors and to have a greater impact of knowledge production on firm performance and on sectoral growth. A further and important aspect of KISs is the presence of discontinuity in knowledge. Not that such discontinuities are present only in KISs: other sectors are going to be affected, although often less directly, by these discontinuities. However, KISs are likely to be the first ones to start exploring new forms of knowledge and to move them towards exploitation. Thus, we can expect the dynamics of knowledge generation and utilization in KISs to be affected by both (i) the rate of knowledge creation and (ii) the presence of discontinuities in new knowledge. It follows that in order to be able to link the dynamics of knowledge creation and utilization to firm performance and to industrial organization we need to detect a number of properties of the knowledge base (KB) of KISs. Properties such as the diversity/variety of the KB, its coherence and its cognitive distance (or conversely its similarity) between different KBs have already been shown to be potential determinants of firm performance. The aim of this paper is to contribute to this new literature by characterizing the evolution of the KB in three KISs, namely biotechnology, telecommunications and electronics. We use data from the European Patent Office database (EPO database) to see whether we can find common trends in the evolution of the KB of these three KISs.
    Date: 2008–03–14
  5. By: Hatipoglu, Ozan
    Abstract: When people have hierarchic preferences inequality affects innovation-driven growth through the implied demand distribution over new goods. The paper examines the demand path of the firm through its life-cycle and analyzes the efficiency of dynamic resource allocation under different inequality scenarios. Unlike previous models of inequality and demand induced innovation, the innovators are protected by patents of finite length. Longer patents increase the profitability of an innovation because they reduce the effect of inequality by increasing the likelihood that the firms benefit from a future demand jump in sales to the poor. This result does not hold, however, when initial inequality is low or the purchasing power of the poor is high. Moreover, reducing inequality does not increase growth as long as the amount of redistribution is below a threshold level.
    Keywords: innovation dynamics; finite patents; hierarchic preferences; wealth inequality.
    JEL: O15 O31 O14
    Date: 2008–03–20

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