PROCESS INNOVATION AND MARKET STRUCTURE

The interrelationships of market structure and innovation have been a subject of a vivid dispute. In their Research on innovative activity and market structure, macroeconomists focused principally on discussing and Testing the Schumpeter hypotheses (Schumpeter, 1942), which imply that firm size and monopoly power have a positive impact on innovative behaviour. However, the empirical results do not yield coherent support For these views. Coma (1967), analysing the outlays on R&D and firm size, found a positive relationship Between the variables. Mansfield (1964) reported, however, that there was no effect of size on the level of the Firm’s R&D expenditures. Scherer (1965) argued that innovative efforts increase more than proportionally with firm size, up to some point. After passing this threshold, the size may harm inventive Activities. However, Acts and Audresha (1987) found that large firms are more innovative in capital-intensive and concentrated industries. Henderson and Cockburn (1996) reported that size matters for the Profitability of innovative activities and that innovativeness of large companies exhibit substantially higher Productivity than projects run by smaller firms, ceteris paribus. Furthermore, they concluded that the Innovative advantage of large firms is not only attributed to scale economies but, above all, to scope Economies. More light on the subject casts the distinction between product and process innovations because Any motivation to undertake innovative efforts is driven by the ex-ante firm size determining the ex post-firm Growth (Cohen and Clapper, 1996). The authors found support for the hypothesis that larger firms have an Advantage in cost-reducing innovations due to the larger output over which the improvements are spread. This complies with the observation that in mature industries, firms predominantly concentrate on incremental Process innovation rather than on new product introductions. The hypothesis favouring monopoly power over competition has not gained unanimous Acknowledgment, as well. For example, Kenneth Arrow (1962) argued that technological progress is driven by industry followers or potential entrants, not monopolists. However, Segerstrom and Soldiered (1999) Proved that industry-leading firms with significant market shares, undertake, under some conditions, most of The industry's innovative activities. The results of the empirical research on the topic remain equally Inconclusive. Scherer found out that innovative output tended to increase with market concentration level up To some level and then fell (Scherer, 1967). Acts and Audresha (1987) reported that a high concentration Level together with other competition-reducing industry characteristics tends to encourage the innovativeness of large companies. According to Link (1982), in innovation-intensive industries, the share of research resources dedicated to processing innovation increases with market concentration. Many considered that the attempts to determine which market organization favours innovation were running into a dead end. Alarming Phillips, among others, questioned the idea that technological progress is determined by the existence of large-scale enterprises and restricted competition. It is rather technological progress that leads to such market configurations. Hanna and McDowell (1990 and 1990a) found that Market concentration has a positive impact on the adoption of new technology and that innovative firms Increased their market shares, which resulted in either a rise or a drop in the market concentration ratio Subject to firm size. Similarly, Stone man and Kwan (1996) found support for the hypothesis that the returns of the technological laggards tended to decline as other firms adopted new technologies. On the other hand, Gorky (1994) reported that a high rate of innovation decreased concentration levels. To capture the problem of endogenesis, some researchers took a simultaneous approach. For Example, Branch (1974) reported that there are at least two ways in which a firm’s profitability and its Innovative efforts are related. Firstly, profits enable to conduct of innovation activities. Secondly, successful Innovations let the firm charge higher prices and, thus, further strengthen its market power. Lunn (1986) Suggested that any successful process innovation should have an impact on the concentration level. Therefore, Industries with a high propensity for cost-reducing innovations, such as the automobile industry, tend to be more concentrated than industries focused primarily on product innovations. These results clearly illustrate the two-way causal relationship between innovation and market structure. Furthermore, they reveal the Character of the interrelationships between process innovations and industry organization, i.e., on the one hand, process innovations tend to reduce industry costs, increase a firm’s size, and lead to higher concentration Level, and, on the other hand, concentrated markets, firm’s size positively stimulate efforts aimed at the Introduction of cost-reducing innovations. These considerations will establish the basis of the following Analysis, addressing whether there are any significant interrelationships between firms ’Innovative behaviour and the market structure of the automotive industry.