Firms R&D Investments, Innovation and Market Shares

Abstract

Technological innovation is one of the major factors in determining the long term performance of firms and economies. Here, this subject is analyzed from the point of view of the relationship between the innovative behaviour of a given firm within an oligopolistic industry and its market share. As a matter of fact, the firm capacity to change is closely connected to the size of its R&D activity which generate directly product and/or process innovation, and also develops the firm’s ability to identify, assimilate, and exploit knowledge from the external environment, taking advantage of the public research effort and even of the rivals’ R&D expenditure (Tilton 1971; Allen 1977; Mowery 1983; Cohen and Levinthal 1989; Campisi and Nastasi 1993). The traditional approach to industrial innovative activity devotes little attention to this absorptive capacity of R&D: following Arrow (1962) and Nelson (1959), economists have assumed that any innovation created by one firm provides usable information to other firms at little or no cost, so according to an unpatented innovation the status of a public good. In other terms, the intra-industry technological knowledge transfer requires negligible R&D efforts (Spence 1984; Tirole 1988; Quirmbach 1993).