Market Structure and Innovation

by Morton I. Kamien, Nancy L. Schwartz

Technical advance requires resources and is motivated by the quest for profits; therefore, the rate and direction of advance is determined by the economic system. Recognition of this fact has focused attention on the performance of the market economy in the allocation of resources to technical advance, and the consequent body of research is surveyed and synthesised in this book. The theories of market structure and innovation proposed by Schumpeter, Galbraith, Arrow, Schmookler, Scherer, Mansfield, Phillips, Barzel, Kamien and Schwartz, Loury, Nelson and Winter, Grabowski, Dasgupta and Stiglitz, and others are presented in an integrated form. These theories deal with the nature of competition, the incentives to innovate and the pace of innovative activity under different market structures, and the existence of a market structure that yields the most rapid rate of innovation. In addition, the findings of seventy empirical studies dealing with various facets of the microeconomics of technical innovation are presented. The book is designed to be accessible to economists working in a variety of situations - in universities, business and government - and who are concerned with questions of technical innovation. It is also suitable for senior-level undergraduates and first year graduate students approaching the subject in a comprehensive way for the first time.

256 pages, Paperback

First published January 1, 1982

Reviews

[Ken Davidian · Rating 3 out of 5]

The first chapter provides a great review of the history of thought regarding technical advance as an economic activity, the rise of systematized research, and the need to depart from the free and perfect market ideologies to incentivize private investment in the innovation process.

Schumpterian hypotheses connecting industry structure and innovation are then presented in Chapter 2 ("(1) There is a positive relationship between innovation and monopoly power with the concomitant above normal profits. (2) Large firms are more than proportionately more innovative than small firms.") and Chapter 3 describes the empirical studies related to them. This provides a great review of all the relevant research (up to 1982) and, best yet, describes the operationalization of many independent variables. This last point can provide very helpful ideas to researchers in related fields.

The next two chapters look at the micro-economics of innovation and market structure relationships from decision-theoretic and game-theoretic perspectives. The authors provide great descriptions of the conclusions for each variation of the many assumptions made, and derivations of the equations are collected in Appendices at the end of each chapter. That was nice.. :-D

This is a really good book, but it's probably not for everybody... at least it is an evidence-based discussion of many topics that get thrown around anecdotally...