90 BOOK REVIEW points that can be supported as an equilibrium and those that cannot. Equilibrium conﬁgurations satisfy two conditions: ﬁrst, ﬁrms do not pursue loss-making strate- gies (viability condition); second, there is no un-exploited opportunity to make proﬁts (stability condition). Taken together, the two conditions are features implied by the familiar game theoretic Nash equilibrium concept. The book is divided into three parts, each of which tests a theoretical propo- sition. Part I follows the cross-industry approach and looks at the relationship between R&D intensity and market concentration. The empirical literature ﬁnds mixed results when trying to establish a relationship between the R&D/sales ratio and a measure of concentration running cross-section regressions. Reasons for this are related to the weakness of R&D as an indicator of the relevant technological characteristics of an industry and, more importantly, a regression speciﬁcation may simply not capture the nature of the link. The author thus suggests the bounds approach as an alternative. To make the model operational in the context of R&D intensive industries, an ‘escalation’ parameter is deﬁned, which is the ratio between the increase in prof- its resulting from a marginal increase in R&D expenditure. The value of depends on
Review of Industrial Organization – Springer Journals
Published: Oct 15, 2004
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