Determinants of new product introductions in the US food industry: a panel-model approach

Abstract

Economic theory suggests that market structure variables influence technical change, growth and new product introductions. Based on a broad data set for new product introductions in various food industries, it is elaborated in this article how market structure variables affect innovative activities in the US food sector. It is different from earlier studies in the way that cross-sectional and time-series data are combined and panel data models are used in the econometric analysis. A major result is that new product introductions are driven by market structure variables and industry-specific characteristics, i.e. fixed effects. A significant determinant of new food product introductions is the concentration ratio which affects the number of innovations in a nonlinear form. The fixed-effects estimates reveal a U-type effect of concentration on innovations. Furthermore, the number of firms, the degree of existing product differentiation and the size of a market show a positive influence on the number of innovations. From a methodological point of view, plain OLS models yield biased results on the concentration-innovation linkage and on the relationship between the size of a market and innovations. Therefore, it is very important to include sector-specific characteristics as is done in the fixed-effects models.