Technology and Market Structure. Theory and History. John Sutton.

Technology and Market Structure. Theory and History. John Sutton. 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 http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

Technology and Market Structure. Theory and History. John Sutton.

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Publisher
Springer Journals
Copyright
Copyright © 1999 by Kluwer Academic Publishers
Subject
Economics; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
D.O.I.
10.1023/A:1007766010906
Publisher site
See Article on Publisher Site

Abstract

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

Journal

Review of Industrial OrganizationSpringer Journals

Published: Oct 15, 2004

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