Innovation, Technological Opportunity, and Market Structure

This paper is an empirical analysis of the familiar Shumpeterian hypothesis that market structure affects innovation. Using panel data on major innovations in the United Kingdom, 1970-79, and data on a range of measures of competitive rivalry, the model corrects for technological opportunity using fixed effects and measures both the direct effect of rivalry on innovation as well as the indirect effect that occurs because rivalry affects postinnovation returns. The results suggest that rivalry increases innovativeness notwithstanding a mild offsetting effect that arises because rivalry dampens postinnovation returns. Copyright 1990 by Royal Economic Society.