Abstract
This article evaluates and finds support for the hypothesis that innovative activity undertaken by firms, as measured by the level of investments in new technology, is a positive function of micro-market pressures that they face from potential competitors. The empirical context studies is a cross-sectional sample of 40 firms that make up the principal portion of the local operating sector of the U.S. telecommunications industry. Firm size and potential market power are both found to be insignificant but negative, thus not validating two hypotheses much researched in the literature that innovative activity is a positive function of firm size and potential market power. Demand-growth and imitation effects are also controlled in the model and are found positively to induce investment in new technology.
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