Title: Market structure and innovation
Description: "We study the relationship between market structure and innovation in the global automobile industry from 1982 to 2004 using the dynamic industry framework of Ericson and Pakes (1995).  Firms optimally choose a continuous level of innovation in a strategic and forward-looking manner, while anticipating the possibility of future mergers.  We show that our estimated model predicts the data well and that changes in the modeling assumptions have a predictable effect on the key dynamic parameter -- the cost of innovation.  In terms of the relationship between market structure and innovation, we find that: (1) At the firm level, there is a weakly positive relationship between a firm's price-cost margin and its innovation intensity; (2) There is no relationship between competition and innovation at the industry level in the steady state.  As the industry goes through a consolidation phase, the relationship is negative if competition is measured by the inverse of markups and positive if it is measured by the inverse of concentration; (3) A key determinant of a firm's innovation intensity is its relative position in the industry in terms of knowledge stock"--National Bureau of Economic Research web site.