Innovation and Competition in the Netherlands: Testing the Inverted-U for Industries and Firms

Competition can be good or bad for innovation by firms. On the one hand it stimulates firms to innovate in order to escape competition, on the other hand it hampers firms to reap additional profits from innovation. The recent literature has embraced a model that describes an inverted-U shape relationship between competition and innovation at the industry-level. With the Price Cost Margin and Profit Elasticity as measures of competition, we find evidence supporting this prediction using industry data from the Dutch National Accounts. Moreover, we test the non-linear relation at the micro-level, with special attention for the role of the distribution of technology within industries. We find evidence that there is a threshold for this ‘technology spread’ at which the (marginal) effect of competition on innovation activity by firms turns from positive to negative.     

Reflections on the Relation Between Competition and Innovation

In this paper some reflections are developed on the relation between the organization of markets and innovative activities. The IO (Industrial Organization) predictions often depend crucially on the structural and behavioral characteristics of markets (or industries). To some extent this is also the case for the relation between innovation and competition. But a synthesis of existing work provides nevertheless some robust tendencies, including the predictions that in many cases the aggregate R&D activity is positively or inverted-U related with competition intensity. Clearly this tendency may be useful for positive analysis and policy.     

Leading without Followers: How Politics and Market Dynamics Trapped Innovations in Japan’s Domestic “Galapagos” Telecommunications Sector

While globally successful Japanese industries were able to use their domestic market as a springboard into international markets, Japan’s telecommunications sector became decoupled from global markets, trapping Japanese ICT firms in the domestic market. This persistent pattern of leading without followers was not simply the result of misguided technological choices, ill-informed corporate strategies, or insular government standard-setting processes. Rather, the dynamics of competition, shaped and reshaped by political dynamics and regulatory structures, decoupled it from global markets. These dynamics created a “Galapagos effect”, in which winning in an isolated domestic market led to losing in global markets. Major regulatory shifts transformed the dynamics of competition since the late 1990s, decreasing the isolation of Japan’s telecommunications sector, but some factors pulling it along a proprietary trajectory persist. This paper highlights the dilemma of how to develop beyond a follower status, but avoid becoming a leader without followers.     

‘Entry Thresholds and Actual Entry and Exit in Local Markets’

Bresnahan and Reiss (1991) derive entry thresholds for local markets but do not investigate actual entry and exit flows. This paper investigates for thirteen Belgian retail and consumer service industries whether markets with actual numbers of firms higher (lower) than the thresholds display exit (entry) in subsequent periods. The results confirm that over a three-year period the rate of (net) entry is positively affected by the presence of ‘market room’. The exit rate, however, does not show a negative relation with ‘market room’.      

The battleship strategy: The complementing role of born globals in MNC’s new opportunity creation

In the high-tech industries, new innovations affect a multinational company’s (MNC’s) competitive advantage. This article empirically explores why and how MNCs complement their in-house R&D by forming strategic alliance constellations with small, innovative born globals. We focus on loose, non-equity opportunity-seeking co-opetitive relationships. We call this approach the battleship strategy. The critical elements of an MNC’s battleship strategy include an open innovation commercialization strategy and creation of forums for facilitating open innovation and capturing ideas generated externally. Hence, we suggest that MNCs may externalize some of their innovation activities while gaining a competitive advantage through access to open innovation. This article contributes in several ways to earlier research focusing on the strategic alliances and networks formed between MNCs and born globals by examining the relationship from an MNC’s perspective.     

Firm entry and turnover: the nexus with profitability and growth

The paper presents a new sectoral taxonomy, which classifies industries according to the opportunity and cost of experimentation. Econometric tests show for a sample of 24 countries that in the 1990s ‘entrepreneurial’ industries with a mutable and growing firm population experienced the highest growth in terms of value added and employment, but also the lowest growth of labour productivity. ‘Entrepreneurial’ industries generally earned a better profit-ratio than ‘routinised’ industries with an inertial population. The results are consistent with entrepreneurial theories of market competition, which suggest that entry follows profit opportunities but does not deplete them.      

Competitive pressure,innovation and trade protection: Evidence from US patent data

Recent theoretical models have suggested that the relationship between competition and innovation may best be characterised as an inverted‐U shape: firms in industries with low levels of competition are more likely to innovate in the wake of increased competition as they attempt to escape competition, while those in highly competitive industries will decrease innovation in the wake of increased competition as the profit incentive to innovate dissipates. Results from other studies have found positive as well as negative relationships between innovation and competition. In a parallel literature, trade economists have produced conflicting results regarding the impact of trade liberalisation on innovation. One stream of research has shown that increased access to imported intermediate goods increases productivity, suggesting a positive relationship between imports and innovation. Others have hypothesised that firms may use the technology embodied in intermediate inputs as a substitute for domestic innovation. In this paper, we merge these divergent literatures and investigate whether innovation, as measured by the production of patents by US manufacturers, has been impacted by market competition and tariff reductions. Our empirical findings indicate that insulation from imports in the form of higher tariffs on final goods was associated with innovation until the late 1980s, while falling tariffs on intermediate goods appear to have facilitated innovation during the 1990s. We also find evidence of the inverted U‐shaped relationship between market competition and innovation.     

Returns to networking in academia

This paper examines effects of academic networks in a Stackelberg differential game between journal editors and authors. Authors choose research papers to maximize satisfaction, while editors determine research quality to maximize journal reputation. Verifying the system for stability, results show that academic networks neither affect the number of publications nor the quality of an author’s papers. Networks only affect the number of an author’s citations. Editors’ preferences for publishing an author because of her network membership seem irrelevant. This happens because editors compete to increase their journal’s reputation by publishing high quality papers. Consequently, there is little room for editorial bias. Further, increased journal competition has the potential to erode the citation gains. The equilibrium research quality is below the maximum possible quality. Increases in publication benefits are shown to leave citations unaffected, increase the number of publications, and decrease research quality. The results generally carry through when publishing markets tend to a monopoly.     

Competitive Pressure in Transition: A Role for Trade and Competition Policies?

This paper investigates the effects of trade reforms and antitrust enforcement on the pricing behavior of firms, shedding light on the respective contributions of these policy instruments to the shaping of competitive markets. To this end, we use a rich panel data set of more than 25,000 manufacturing firms from Bulgaria, the Czech Republic, Estonia, Hungary, Poland, the Slovak Republic and Slovenia, spanning a 5-year period. We find a positive and statistically significant relationship between domestic firms’ mark-ups and industry protection, as reflected in MFN and trade-weighted import tariffs. The toughness of competition policy enforcement, captured by the number of final instance decisions delivered by national antitrust authorities and an index developed by the EBRD, has a negative impact of greater magnitude than import penetration. We also test for the significance of enacting major legislative amendments with regard to competition policy in the studied countries, as well as for differential effects in export-oriented and import-competing industries.     

中国制造业企业创新活动的关键影响因素研究——基于江苏省制造业企业问卷的分析

Based on empirical evidence from enterprises in Jiangsu Province, this paper studies key influencing factors of their innovation activities at the micro level. Results show that a “threshold effect” and a reversed U-shaped relationship exist between an enterprise’s size and intensity of its innovation input when factors such as brand, entrepreneur background, HR, industrial and regional differences are controlled. Agglomeration effect is found influencing an enterprise’s innovation activities negatively rather than positively. A non-linear relationship is also found between an enterprise’s innovation activities and export ratio, showing a “capture effect”. A behavior mode of the effects of these influencing factors on innovation activities of China’s manufacturing enterprises is established and implications are provided. __________ Translated and revised from Guanli shijie 管理世界 (Management World), 2007, (6): 64–74     

The Relationship Between Competition and Incumbent’s Innovation

A static model is developed to analyse the incumbent’s innovation strategy under monopoly and duopoly. A number of potential objectives for the incumbent are modelled here, including the maximization of revenue, profit, and welfare (which are common among the network industries). Its marginal cost depends upon investment in new technologies and processes. The incumbent chooses its price and its level of investment in innovation. The incumbent’s elasticity of demand under both market structures and the incumbent’s market share under duopoly determine which market structure creates more incentives to innovate. For certain values of these variables, duopoly provides more incentives to innovate than monopoly. As expected, the incentives to innovate increase when the incumbent places greater weight on social welfare.     

Market Incentives for Business Innovation: Results from Canada

Are more competitive industries more innovative? Empirical investigation into various theories of innovation in industrial organization, agency theory, or endogenous growth, make diverse predictions with respect to this long-standing open question in economics. In this paper, we investigate the empirical relationship between competition intensity and firm innovation using a new micro-database containing a large sample of Canadian manufacturing enterprises over the 2000–05 period. Using three different measures of competition intensity, we find evidence that competition intensity is positively related to firm-level expenditures on research and development (R&D) in Canadian manufacturing industries. However, we also find that this relationship is dampened when more firms are further from the technological frontier of their industry. Nevertheless, the results provide evidence for a Schumpeterian interpretation, whereby market power can increase business incentives for innovation when many firms are technological laggards.     

Creative mass. Consumption,creativity and innovation on Bangkok's fashion markets

The becoming productive of consumer culture has been an important theme for social research. Within neoliberal discourse, the link between consumer culture and new forms of immaterial production has been conceptualized as “creativity.” This paper uses the experience of Bangkok's fashion markets to begin to articulate an alternative understanding of the relation between consumer culture and immaterial production, a different kind of “creativity.” We suggest that Bangkok's fashion markets manifest a kind of creativity where innovation is highly socialized, as opposed to being oriented around the notion of individual genius and individual intellectual property; where participation is popular as opposed to elite-based and where the ambiguous relation between creation and commercial success that is intrinsic to Western notions of creativity is replaced by an embrace of markets and commerce as vehicles for self-expression. Bangkok's fashion markets represent an example of a market-based commons centered innovation economy.     

Are Small Innovators Credit Rationed?

Drawing upon a sample of 256 small firms who applied for bank loans, the current paper is concerned with the extent to which ‘innovativeness’ is associated with a lower level of loan application success. The paper records the proportion of loan successfully applied for and estimates a series of tobit models utilising a number of proxy measures for innovation (in terms of inputs, outputs, and commercial significance to the firm) and incorporating standard controls. In general, the models suggest (as anticipated) that the most innovative firms are less successful in loan markets than their less innovative peers – though there is some variation by proxy. Moreover, there is tentative evidence that ‘a little innovation may be a good thing’.     

Is banking competition beneficial to SMEs? An empirical study based on Italian data

Using a large panel of Italian firms, spanning the years from 1995 to 2003, this study investigates the relationship between bank debt and non-financial SMEs’ performance, evaluating whether and to what extent this link is affected by the degree of competition characterising the local credit market where firms operate. Controlling for inertia, unobserved heterogeneity and the endogeneity of some performance determinants, we find that the (negative) impact of bank debt on firms’ performance is weaker for firms running in more competitive banking markets. We interpret this result as evidence that a more intense banking competition may lead to better credit conditions for small and medium-sized firms.     

Innovation and imitation effects in Metaverse service adoption

This study examines the innovation and imitation effects in Metaverse service adoption. “Metaverse services” is a collective term for services such as Augmented reality, Life logging, Mirror world, and Virtual world. Among them, Twitter, Google, iPhone, and Secondlife (T.G.I.S) are the most popular services/products these days. To measure the adoption of these product/services, the most commonly used are IP traffic and iPhone sales. Thus, in this study, we measured adoption by measuring changes in the IP traffic volume of , , , and sales for iPhone during a 2-year period (from the first quarter of 2008 to the fourth quarter of 2009). To analyze this time series data to reveal the innovation and imitation effect, we employed the Bass model. The results showed that each of these services yields different innovation and imitation coefficient values. Imitation effects for all Metaverse services are greater than innovation effects, and Secondlife’s innovation effects are larger than others. Also, iPhone sales, as a measurement for information and communication technology (ICT) products, showed greater innovation effects than the other services. Implications are drawn to explain these differences, such as, Googlemap’s imitation effects are based on network externalities, while Twitter’s imitation effects are caused by the interactions of individuals; iPhone sales’ innovation effects are explained by the timing of the measurement.     

Innovation and productivity in SMEs: empirical evidence for Italy

Innovation in SMEs exhibits some peculiar features that most traditional indicators of innovation activity do not capture. Therefore, in this paper, we develop a structural model of innovation that incorporates information on innovation success from firm surveys along with the usual R&D expenditures and productivity measures. We then apply the model to data on Italian SMEs from the “Survey on Manufacturing Firms” conducted by Mediocredito-Capitalia covering the period 1995–2003. The model is estimated in steps, following the logic of firms’ decisions and outcomes. We find that international competition fosters R&D intensity, especially for high-tech firms. Firm size and R&D intensity, along with investment in equipment, enhances the likelihood of having both process and product innovation. Both these kinds of innovation have a positive impact on firm’s productivity, especially process innovation. Among SMEs, larger and older firms seem to be less productive.

Anger in social conflict: Cross-situational comparisons and suggestions for the future

This paper reviews research on the role of anger in conflict. We distinguish between intrapersonal and interpersonal effects of anger, the former referring to the impact of parties’ feelings of anger on their own behavior and the latter referring to the impact of one parties’ anger on the other’s behavior. We further compare the effects of anger across a variety of conflict settings, including negotiation, ultimatum bargaining, prisoner’s dilemma, resource dilemma, and coalition formation. At the intrapersonal level, anger is associated with competition in all conflict settings. In contrast, the interpersonal effects of anger differ across situations, with anger sometimes eliciting cooperation, sometimes eliciting competition, and sometimes having no effect. Based on the research reviewed, we conclude that the interpersonal effects of anger in conflict are determined by the level of interdependence of the parties, their information processing tendencies, and the justifiability of the anger expressions. Preparation of this paper was facilitated by a Veni grant from the Netherlands Organization for Scientific Research (NWO 451–05–010) awarded to Gerben A. Van Kleef.     

Marketing in Chinese Small and Medium Enterprises (SMEs): The State of the Art in a Chinese Socialist Economy

This paper adopts the context-embedded approach to examine the marketing practices of 307 small and medium enterprises (SMEs) in the People’’s Republic of China by comparing the survey findings with that of Hong Kong and Guangdong SMEs. Chinese SMEs focus on regional markets to avoid direct competition with Hong Kong SMEs in the international markets and also their Guangdong counterparts in the turbulent nationwide market. To market their own brands, Chinese SMEs have to analyze the market and use superior marketing strategies in the competitive markets. Chinese SMEs do not attain the superior competitive positions as that of their Guangdong counterparts, but they use customer satisfaction surveys and claims investigation to help develop excellence in product performance. Also, Chinese SMEs have to provide value-added products and services and also a well-rounded marketing competitive strategy to gain market shares. The traditional state-owned enterprise structure in China facilitates the development of hierarchical organizational structure and joint decision making process. Thus, care should be taken in assuming that marketing tools and techniques are equally applicable across all places, even in similar cultural contexts. Socio-cultural influences and mediating environmental factors should be considered when attempting to understand the marketing practices of Chinese small firms, specifically when China is in transition to a socialist market economy.