Research and Development Expenditures as a Competitive Strategy

Abstract

Making a better mousetrap has been one of the standard methods of achieving competitive advantages in American industries. Of course, making an equally good mousetrap with lower costs can be just as effective. To the extent that businesses compete with each other with product and process improvements, then one would expect investment in these activities (research and development [R&D]) to be a primary competitive tool. It is natural to ask which types of firms tend to engage heavily in R&D. A clearly related question one might ask is which market structures are conducive to R&D activity and which are not. In addition, it is important to remember that market structure itself may be affected by firms' R&D activities--raising the question of R&D's impact on market structure (see the related paper by Preston in this volume). The most obvious situation in which market structure is affected by R&D activity is, of course, that of a monopoly position achieved and maintained by patents. This latter question; that is, essentially asking if market structure is really exogenous, is often not directly addressed in the literature. The purpose of this paper is to survey one portion of the so-called market structure literature, viz., the empirical literature dealing with the relation between market structure and the level of research and development activity. Weiss (1969) has surveyed the empirical literature in the entire field of industrial organization, and Kamien and Schwartz (1975) more recently surveyed the literature concerning innovative activity in general. In order to allow for an intensive examination of one body of literature, the scope of this paper has been kept narrow. Readers interested in other issues, for example, the rate of adoption or imitation and the diffusion of technological information, are referred to these other studies.

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