Innovation by Entrants and Incumbents

We extend the basic Schumpeterian endogenous growth model by allowing incumbents to undertake innovations to improve their products, while entrants engage in more “radical” innovations to replace incumbents. Our model provides a tractable framework for the analysis of growth driven by both entry of new firms and productivity improvements by continuing firms. Unlike in the basic Schumpeterian models, subsidies to potential entrants might decrease economic growth because they discourage productivity improvements by incumbents in response to reduced entry, which may outweigh the positive effect of greater creative destruction. As the model features entry of new firms and expansion and exit of existing firms, it also generates a non-degenerate equilibrium firm size distribution. We show that when there is also costly imitation preventing any sector from falling too far below the average, the stationary firm size distribution is Pareto with an exponent approximately equal to one (the so-called “Zipf” distribution”)

Innovation by Entrants and Incumbents

We extend the basic Schumpeterian endogenous growth model by allowing incumbents to undertake innovations to improve their products, while entrants engage in more “radical” innovations to replace incumbents. Our model provides a tractable framework for the analysis of growth driven by both entry of new firms and productivity improvements by continuing firms. Unlike in the basic Schumpeterian models, subsidies to potential entrants might decrease economic growth because they discourage productivity improvements by incumbents in response to reduced entry, which may outweigh the positive effect of greater creative destruction. As the model features entry of new firms and expansion and exit of existing firms, it also generates a non-degenerate equilibrium firm size distribution. We show that, when there is also costly imitation preventing any sector from falling too far below the average, the stationary firm size distribution is Pareto with an exponent approximately equal to one (the so-called “Zipf distribution”).

Antitrust in Innovative Industries

We study the effects of antitrust policy in industries with continual innovation. A more protective antitrust policy may have conflicting effects on innovation incentives, raising the profits of new entrants, but lowering those of continuing incumbents. We show that the direction of the net effect can be determined by analyzing shifts in innovation benefit and supply holding the innovation rate fixed. We apply this framework to analyze several specific antitrust policies. We show that in some cases, holding the innovation rate fixed, as suggested by our comparative statics results, the tension does not arise and a more protective policy necessarily raises the rate of innovation.

Disruptive Innovation by Heterogeneous Incumbents and Economic Growth: When do incumbents switch to new technology?

In this paper, we construct a tractable endogenous growth model to examine heterogeneous incumbents' current technology-switching behavior. Then, we examine the effects of policies such as a subsidy for innovation by incumbents, a subsidy for innovation by entrants, and the extension of patent length. Our setting suggests interesting and counterintuitive results. High quality incumbents tend to be less likely to conduct innovation, which is inconsistent with Schumpeter's hypothesis. A subsidy for innovation by entrants decreases the average quality of differentiated goods. Moreover, it may decrease the growth rate of the economy if the positive spillover of innovation from average quality production is adequately large. Aggregate innovation can be small even when the population size is large if the barriers to entry are extremely high

Disruptive Innovation by Heterogeneous Incumbents and Economic Growth: When do incumbents switch to new technology?

In this paper, we construct a tractable endogenous growth model to examine heterogeneous incumbents' current technology-switching behavior. Then, we examine the effects of policies such as a subsidy for innovation by incumbents, a subsidy for innovation by entrants, and the extension of patent length. Our setting suggests interesting and counterintuitive results. High quality incumbents tend to be less likely to conduct innovation, which is inconsistent with Schumpeter's hypothesis. A subsidy for innovation by entrants decreases the average quality of differentiated goods. Moreover, it may decrease the growth rate of the economy if the positive spillover of innovation from average quality production is adequately large. Aggregate innovation can be small even when the population size is large if the barriers to entry are extremely high

Competitiveness, productivity and externalization: Food versus autos in Catalonia

This paper re-examines the innovation-productivity nexus on the basis of a paired comparison between Catalonia's food and auto sectors. The sectoral studies expose a set of productivity enhancement mechanisms that do not involve innovation in the sense of anything new to the world, that are grouped under the rubric of renovation and comprise: - Reaching efficient scale - Rectifying (other) obvious internal deficiencies - Replicating or imitating innovations, techniques, etc., developed by others - Replacement of inefficient incumbents by more efficient entrants - Redeployment of resources across sectors The paper also discusses the implications of this broader perspective for industrial policy, and for internationalization.Productivity; Innovation; Industrial Policy; Internationalization; Globalization; Strategy;

A Literature Review on the Relationship between Disruption and Business Model Innovation: What Choices do Incumbents have?

In many industries, incumbents face or are aware of the threat of disruption because of ongoing digital innovation. Disruption literature, prior to the late ’90s’, alluded to incumbents’ failure or success for reasons such as the technology deployed by the organisation. However, a few years after the first publication of Christensen’s theory on disruption (1995), researchers, including Christensen, began to attribute the success or failure of organisations to business models and not to technology per se. Thus, how organisations innovate their business models explain how they will fare in the market. A systematic literature review of the extant literature on disruption and business models, between 1997 and 2019 was conducted. The content analysis revealed three key relationships between disruption and business model innovation: (1) Entrants deploying disruptive business models, (2) Incumbents creating new business models, and (3) Incumbents adapting existing business models

Are Intellectual Property Rights Detrimental to Innovation?

Intellectual property rights are legal constraints that limit entry in industries where incumbents are innovators. The set of legal constraints is the same for all industries, without considering that the externalities created by entry are not necessarily negative for the incumbent or that the incumbent's R&D expenditures can be detrimental to entrants. We show that one unique set of legal rules can foster innovation and increase total R&D expenditures in some industries and be detrimental in others. The model is illustrated by case studies from the information and communication technologies industry (software, hardware, music and videogame industries).innovation; spillover; leadership; R&D regulation

Artificial Intelligence (AI) and Business Innovation in Insurance: A Comparison of Incumbent Firms versus New Entrants

Artificial Intelligence (AI) systems evolve in response to new data by using adaptive algorithms. The insurance industry is data intensive, and dynamic. It is therefore particularly suitable for AI implementation. An innovation triangle framework is proposed that consists of product, process and value chain innovation. A comparison of leading incumbent insurance firms with new entrants illustrates significant competitive differences. The incumbents apply AI to defend their market positions by enhancing existing strengths and capabilities across the three innovation types. The new entrants exploit AI technology to build new products with innovative features that emphasise customer value and user experience. The innovation triangle is a useful managerial tool to analyse the nature and extent of innovation in insurance and can be used to evaluate and plan AI strategies by mapping existing AI initiatives to specific types of innovation and identifying innovation objectives and opportunities. Future trends and research opportunities are outlined