Incumbent innovation and domestic entry

Citation

Falck O, Heblich S & Kipar S (2011) Incumbent innovation and domestic entry. Small Business Economics, 36 (3), pp. 271-279. https://doi.org/10.1007/s11187-009-9219-1

Abstract
This paper analyzes the escape-entry incentive for innovation by incumbent firms. The threat posed by the possibility of leading-edge firms entering the market influences incumbent innovation. To overcome problems of endogeneity, we apply an instrumental variable approach to analyze a rich firmlevel dataset (1987-2000) for Germany. We find evidence that domestic entry has a negative effect on incumbent product innovation, which is a strong indication of new entrants' comparative advantage in commercializing new ideas. In contrast, domestic entry has a positive effect on incumbent process innovations, an effect also known as the escape-entry effect.

Keywords
Entry; Process innovation; Product innovation

Journal
Small Business Economics: Volume 36, Issue 3