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Competition favors the prepared firm: Firms’ R&D responses to competitive market pressure

Authors
Journal
Research Policy
0048-7333
Publisher
Elsevier
Publication Date
Volume
38
Issue
5
Identifiers
DOI: 10.1016/j.respol.2009.01.005
Keywords
  • Technological Competence
  • R&D Response To Competitive Market Pressure

Abstract

Abstract This paper aims to contribute to the literature on the long-debated relationship between market competition and firm research and development (R&D) by investigating the effect of competitive market pressure on firms’ incentives to invest in R&D. The paper shows that a firm's R&D response to competitive market pressure depends primarily on its level of technological competence or R&D productivity: firms with high levels of technological competence tend to respond aggressively (i.e., exhibit a higher level of R&D efforts) to intensifying competitive market pressure, while firms with low levels of technological competence tend to respond submissively (i.e., exhibit a lower level of R&D efforts). The differential effect of competitive market pressure on firm R&D, conditioned primarily by the level of firms’ technological competence, is empirically supported by unique firm-level data from the World Bank. Furthermore, the role of firm-specific technological competence in conditioning the R&D–competition relationship is more evident and statistically more significant for firms facing consumers whose utility is relatively more elastic to product quality than to price.

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