Title: The Relationship between Market structure and innovation in industry equilibrium: a case study of the global automobile industry
Authors: Hashmi, R. Aamir ×
Van Biesebroeck, Jo #
Issue Date: 2016
Series Title: Review of Economics and Statistics vol:98 issue:1 pages:192-208
Abstract: We specify and estimate a dynamic game to study the equilibrium relationship between market structure and innovation in the automobile industry. The quality of each firm’s product for the average consumer, the key state variable, is modeled as stochastically increasing in innovation,the dynamic control, which is proxied by patent applications. Equilibrium innovation is a function of market structure, the vector of quality levels of
all active firms, and the cost of R&D. Our main findings are as follows:(a) optimal innovation has an inverted-U shape in own quality; (b) holding own quality constant, innovation is declining in average rival quality but
increasing in quality dispersion; and (c) following entry, each incumbent’s innovation declines, but aggregate innovation increases in most market structures. These findings are broadly consistent with the Schumpeterian
hypothesis that market power leads to more innovation.
ISSN: 0034-6535
Publication status: published
KU Leuven publication type: IT
Appears in Collections:Research Center of Public Economics, Leuven
Research Center of Econometrics, Leuven
× corresponding author
# (joint) last author

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