Innovation and Competition: The True Innovativeness of Innovation and Distance to Frontier

Innovation and Competition: The True Innovativeness of Innovation and Distance to Frontier

In the literature on innovation and competition, consideration of the ‘innovativeness’ of innovation has been neglected. This paper investigates the relationship between innovation and competition conditional on the innovativeness of innovation and the distance to frontier. We measure the innovativeness of innovation by analyzing whether it is a new-to-the-market innovation or a new-to-the-firm innovation. Further, we develop a new measure of firms’ technological level using firms’ main objective of innovation. Using a dataset from surveys of Korean manufacturing firms from 2002 to 2004, this paper finds that the relationship between competition and innovation is conditional on both the quality of innovation and distance to frontier. The results are: (1) frontiers are more likely to innovate than technological laggard firms, (2) competition has an inverted-U shape relation with new to the market innovation, while there is no such relation with new to the firm only innovation, (3) the inverted-U shape relation between competition and innovation is driven by frontiers, not followers or laggards, and (4) new to the market innovation and R&D expenditure show a similar pattern of an inverted-U shape relation with competition, while new to the firm only innovation and patents exhibit a similar pattern of no relation with competition.

In the literature on innovation and competition, consideration of the ‘innovativeness’ of innovation has been neglected. This paper investigates the relationship between innovation and competition conditional on the innovativeness of innovation and the distance to frontier. We measure the innovativeness of innovation by analyzing whether it is a new-to-the-market innovation or a new-to-the-firm innovation. Further, we develop a new measure of firms’ technological level using firms’ main objective of innovation. Using a dataset from surveys of Korean manufacturing firms from 2002 to 2004, this paper finds that the relationship between competition and innovation is conditional on both the quality of innovation and distance to frontier. The results are: (1) frontiers are more likely to innovate than technological laggard firms, (2) competition has an inverted-U shape relation with new to the market innovation, while there is no such relation with new to the firm only innovation, (3) the inverted-U shape relation between competition and innovation is driven by frontiers, not followers or laggards, and (4) new to the market innovation and R&D expenditure show a similar pattern of an inverted-U shape relation with competition, while new to the firm only innovation and patents exhibit a similar pattern of no relation with competition.