Wesley M. Cohen, Steven Klepper, Firm Size and the Nature of Innovation within Industries: The Case of Process and Product R&D, The Review of Economics and Statistics, Vol. 78, No. 2 (May, 1996), pp. 232-243

We assess competition among retail depository institutions in 1,884 rural markets. We estimate an equilibrium market structure model that endogenizes the operating decisions of three types of depository institutions: multimarket banks, single-market banks, and thrift institutions. Observed market structures and a game-theoretic specification of entry behavior identify the parameters of an underlying profit function. We find strong evidence that product differentiation generates additional profits for retail depository institutions. These profits help to maintain smaller banks and thrifts, even as larger banks expand their operations. Consumers have more options, as more institutions can profitably operate as a result of product differentiation.

Using firm data disaggregated by industry, the authors establish a set of regularities in the distribution of firm R&D intensities within manufacturing industries. The authors show how a simple probabilistic process, in which change influences a key unobserved determinant of R&D and firm size conditions the returns to R&D, can account for these regularities and other features of the distributions. The model provides a unified, noncausal explanation of a series of long-observed relationships across mean R&D intensity, market concentration, and the coefficient of variation. It also offers a novel explanation for the inverse relationship between R&D productivity and firm size. Copyright 1992 by American Economic Association.

Using firm data disaggregated by industry, we establish a set of regularities in the distribution of firm R&D intensities within manufacturing industries. We show how a simple probabilistic process, in which chance influences a key unobserved determinant of R&D and firm size conditions the returns to R&D, can account for these regularities and other features of the distributions. The model provides a unified, noncausal explanation of a series of long-observed relationships across mean R&D intensity, market concentration, and the coefficient of variation. It also offers a novel explanation for the inverse relationship between R&D productivity and firm size.

One of the largest bodies of literature in the field of industrial organization is devoted to the interpretation and testing of several hypotheses advanced by Joseph Schumpeter (1950) concerning innovation and industrial market structure. One set of hypotheses focuses on the role of firm size as a determinant of R&D spending and the rate of technological advance. Another set focuses on the effect of market concentration on R&D and technological advance. In this paper, we reexamine the latter set of hypotheses at the industry level, using new data on R&D appropriability and technological opportunity collected by Levin et al. (1984) in a survey of R&D executives in 130 industries.