The intensity of market competition and the innovative performance of firms

Abstract

ABSTRACTThis paper examines the relationship between the intensity of market competition and intensity of innovation in Poland analysed at the firm-level. The current theoretical and empirical literature on the subject provides rather ambiguous results. The evidence for transition economies is rather scant. In order to fill this gap, we utilise a unique dataset combining quantitative financial data with qualitative data from an extensive survey of a representative sample of 709 companies from Poland. We first measure the intensity of competition. Second, we model the intensity of innovation as a function of the intensity of competition controlling for a number of firm-specific and region-specific features. The results of negative binomial regression models are robust to different modifications. The relationship between the intensity of competition and innovation proves to be of inverted U-shape. Furthermore, there is evidence for the relationship being steeper for neck-and-neck industries in accordance with the major theoretical postulates.