Market Structure and Innovation: Determinants and Conditionality in a Schumpeterian Framework

Schumpeterian theory regards innovation as the main engine for economic growth and assigns a major role to market structure in determining innovation. Complexity of this relationship and poor quality of data however yields high ambiguity of both theoretical and empirical literature on the topic. This study provides new evidence on the relationship between market structure and innovation by analyzing new U.S. industry level innovation data and assessing the quality of the new data in measuring innovation. Next to assessing previous findings with new data, a theorized conditional relationship between market concentration and dynamics on innovation is empirically studied. Controlling for size, entrepreneurship and in particular industry effects, we find evidence of a positive individual effect of market concentration and market dynamics on innovation. Excluding industry effects, we find evidence of a conditional relationship as well, positively affecting innovation when concentration and dynamics take contrasting values. From analyzing new innovation data we conclude that contributions to the Schumpeterian innovation debate, such as our findings, can still be made; further collection and analysis of new data will therefore shed more light on both the conditional relationship as the complexity of market structure and innovation.