UE 5: Firm Size, Market Structure, Opportunity, and the Output of Patented Inventions Flashcards
Explain Schmookler’s Demand-Pull Hypothesis of the initiation of inventive activity.
Technology-push effect was long been known. The Demand-pull stimulus, on the other hand, was investigated in detail for the first time.
Demand also has an effect on innovation, as profitable situations exist to be exploited.
What was the structure of the data in Schmookler & Brownlee (1962)?
Study of 448 of the Fortune 500 companies.
Independent variables:
- 3 measures of firm size for 1955
- profits for 1955 through 1960
- liquid assets for 1955
- index of diversification
- dummy variables differentiating industry and technology classes
Dependent variable:
- Number of U.S. invention patents of sampled firms in 1959
What are issues with patent data?
- Propensity to patent inventions vary from firm to firm and industry to industry.
- Quality of invention varies from patent to patent.
What were some of the results from Schmookler & Brownlee (1962)?
Positive correlation between patents (1959) and sales (1955).
An increase of sales of a firm in any market leads to more incentive and resources to generate market-relating, patentable inventions.
Correlation (𝑟2 = 0.422) can be partly explained with the Demand-Pull effect.
Given that patenting is an increasing function of firm size, does patenting increase more than proportionately with firm size, less than proportionately with firm size, or is the relationship linear?
Schumpeter argues inventive output increases more than proportionately with firm size due to economy of scale due to more effective incentives associated with bigness. Best to use total employment to how large the firm is, and not assets.
What are some statistics on the concentration of sales volume, R&D employment, and patenting?
- Sales volume is more concentrated among large firms than R&D employment, which is slightly more concentrated than patenting
- Top twenty firms by sales make 41.5% of the sales of all 352 firms but only 36.7% of R&D employment and 32.9% of patents
- Smaller firms have higher relative share of inventive activity than sales
What are the effects of diversification on inventions within a firm?
- Research can lead to chance inventions meaningful for other fields
- Firms with interests in several fields are able to produce and market greater proportion of chance inventions than firms acting in narrower environments.
- For highly diversified firms, research is more profitable.
