Solutionto the problemExtreme viewsonmarketstructureandinnovation:Arrow's view:usedto justify marketliberalizationSchumpeter'sview:usedtojustifymarketconcentrationand monopolies,monopolies as“naturalbreeding ground for innovations"Canwemergetheseviews?No!.But:·Industry-specificanalysisisnecessary·Study marketstructure in an industryEffectsofmarketstructureoninnovationTechnischeUniversiteitTUEindhovenUniversityofTechnologyPAGE15EconomicsofInnovation20139/29/2013
Solution to the problem • Extreme views on market structure and innovation: • Arrow’s view: used to justify market liberalization • Schumpeter’s view: used to justify market concentration and monopolies, monopolies as “natural breeding ground for innovations” • Can we merge these views? No! • But: • Industry-specific analysis is necessary • Study market structure in an industry • Effects of market structure on innovation Economics of Innovation 2013 9/29/2013 PAGE 15
Most markets are oligopolistic markets!TechnischeUniversiteitTUeEindhovenUniversityofTechnologyEconomics169/29/2013of Innovation2013
THE EMPIRICAL LITERATURE Most markets are oligopolistic markets! 9/29/2013 Economics of Innovation 2013 16
ScPmodel:MostindustriesareoligopoliesGOVERNMENTPOLICYAntitrustRegulationCONDUCTSTRUCTUREPERFORMANCEPricingConcentrationEfficiencyAdvertisingProductDifferentiationTechnicalProgressResearchandEntryBarriersdevelopmentStructure-Conduct-Performance(SCP)Modelof IndustrialOrganizationTechnischeUniversiteitTUEindhovenJUniversityofTechnologyEconomics9/29/201317of Innovation2013
9/29/2013 Economics of Innovation 2013 17 SCP model: Most industries are oligopolies STRUCTURE Concentration Product Differentiation Entry Barriers CONDUCT Pricing Advertising Research and development PERFORMANCE Efficiency Technical Progress GOVERNMENT POLICY Antitrust Regulation Structure-Conduct-Performance (SCP) Model of Industrial Organization