Industrial and Corporate Change - current issue

Inter-industry differences in profitability: the legacy of the structure-efficiency debate revisited

Lee, C.-Y., Mahmood, I. P. — 2009-05-26

This study presents a simple model on the sources of inter-industry variation in profitability and tests its empirical implications in order to shed new light on the long-lasting debate over industry profitability. The model identifies four key factors that jointly influence an industry's price–cost margin: (i) the intensity of strategic investment (e.g. R&D and advertising), (ii) the skewness of the distribution of market share or market concentration, (iii) the appropriability of strategic investment, and (iv) the extent to which firms’ market shares are determined by the intensity of their strategic investment. These factors are expected to be positively related to industry profitability, and our empirical analysis provides supportive evidence. The model also suggests that the conventional, single-dimensional hypotheses on profitability—the market-power (or market-structure) hypothesis and the efficiency hypothesis—are overly simplified. More importantly, existing empirical results allegedly supporting each of these hypotheses are spurious to the extent that the distribution of firm-specific strategic competence reflects firm heterogeneity in efficiency and, at the same time, underlies the distribution of market share or market concentration.

Measurement of the market power of firms: the Japanese case in the 1990s

Kiyota, K., Nakajima, T., Nishimura, K. G. — 2009-05-26

This article presents a new simple econometric framework for the estimation of individual firms’ markup over their marginal cost, taking account of firm heterogeneity, demand-driven cyclical price changes, and the limited availability of firm-level information. The framework is applied to study markup of Japanese firms in manufacturing and wholesale/retail trade for 1994–2002. The results indicate that, on average, the Japanese markets become more competitive in the 1990s than before even in non-manufacturing industries. We also find sizable heterogeneity and non-negligible pro-cyclicality in the markup of the Japanese firms.

Modeling the diffusion of strategies: an application to exporting

Clerides, S., Kassinis, G. — 2009-05-26

We examine whether the spread of an exporting strategy can be characterized as a diffusion process using a general framework that accounts for attrition and changes in the pool of potential adopters and allows the diffusion rate to vary according to firm and market characteristics. Our findings indicate that the diffusion of exporting is described well by the internal model of diffusion. Thus, this framework may be useful in modeling the spread of other strategies. The diffusion rate is found to be strongly related both to firm characteristics and to past adopter performance.

Champions of revealing--the role of open source developers in commercial firms

Henkel, J. — 2009-05-26

The link between firms engaging in open source software (OSS) development and the OSS community is established by individual developers. This linkage might entail a principal-agent issue due to the developer's double allegiance to firm and OSS community, and expose the firm to the risk of losing intellectual property. Using both interviews and a large-scale survey, I substantiate the importance of the developer's role. However, neither interview data nor regression analysis show indications of commercially harmful revealing behavior induced by "Free Software ideology." Management, on the other hand, sometimes seems to be overly concerned about openness. I conclude that a more positive stance towards openness will allow firms to better share in the benefits of open innovation processes.

The nature of local knowledge and new firm formation

Bae, J., Koo, J. — 2009-05-26

Knowledge spillovers in a region often co-vary with the size of knowledge created in the region, i.e. local knowledge. Local knowledge is, however, open to competition between incumbents and new entrants. Given this competition, the size of local knowledge is not always conductive to new entrants. This study examines which types of local knowledge may increase the potential for knowledge spillovers, and eventually entrepreneurial activities.

Routinization of innovation in German manufacturing: the David-Goliath symbiosis revisited

Falck, O. — 2009-05-26

Small and medium-sized firms frequently are viewed as the drivers of radical innovation. However, they often do not have the focus and commitment necessary for improving and extending the innovation, tasks better accomplished by routinized large firms. Using a uniquely rich industry-level data set for German manufacturing industries during 1991–2004, this article finds evidence for this David–Goliath symbiosis. Although small and medium-sized firm innovation rates can explain the within-industry variation of productivity growth, it is the large firm process innovation rate that explains differences in the level of productivity growth between industries, i.e. differences in the degree of routinization of innovation.

The dynamics of rapid industrial growth: evidence from Sweden's information technology industry, 1990-2004

Zaring, O., Eriksson, C. M. — 2009-05-26

Sweden's information technology (IT) industry expanded through an inflow of new entrants during the 1990s. Its evolution was analyzed using ecological models of organizational founding and disbanding. Controlling for the effects of economic conditions, this study analyzed the effects of density dependence, age, imprinting, rate dependence, and the origin of new entrants on the industry. The results indicate that the inflow was comprised of start-ups that proved to be relatively short-lived. In contrast, new entrants that originated as part of incumbent firms that were diversifying in IT stabilized the industry by depressing its disbanding rate and facilitating the entry of new firms. In explaining the dynamics of the industry, the analysis supports the established models of density dependence, age dependence, imprinting, and organizational origin.

Inter-firm technology transfer: partnership-embedded licensing or standard licensing agreements?

Hagedoorn, J., Lorenz-Orlean, S., van Kranenburg, H. — 2009-05-26

When companies decide to engage in technology transfer through exclusive licensing to other firms, they have two basic options: to use standard licensing contracts or to set-up more elaborate partnership-embedded licensing agreements. We find that broader partnership-embedded licensing agreements are preferred with higher levels of technological sophistication of industries, with greater perceived effectiveness of secrecy as a means of appropriability, and when licensors are smaller than their licensees. Innovative differential between companies, innovative supremacy of the licensor and market and technological overlap between partners appear to have no effect on the preference for a particular form of licensing.