Innovation, competition, and industry structure
James M. Utterback and Fernando F. Suhez (1993), Research Policy 22 (1993) 1-21
Sangyun Han
(Graduate School of Management of Technology, Ph. D student)
■ Summary
It’s not easy to understand why firms dead or not, although many studies are performed. With
respect to these issues, the authors have set and analyzed the relationship innovation,
competition, and industry structure. The hypotheses summarized as below.
Entering new firms with innovation technology -> temporary monopoly(new market or
penetration to old market) -> entering more new firms to market -> increasing competition ->
established dominant design -> increasing exit firms -> Market stable state
This cycle can be repeatedly happened following when destructive innovation occurs in
market.
The authors analyzed the hypotheses with American 8 industry cases – Typewriter,
Automobile, Television, TV tubes, Transistor, Integrated circuit, Electronic calculator,
Supercomputer-. The result shows the hypotheses confirmed, but excluding Integrated circuit
industry case.
■ Main contribution
The authors use many previous studies for developing their hypotheses. Especially, they
focused on dead of firms with Schumpeter’s ‘creative destruction’. This paper gives some
concepts why firms dead and what happened in market, when occurred innovation. Through
this analysis, we can exam the determinants of firms’ failure or success empirically. For
empirical study, we can use this concept for developing and indentifying the explanatory
variables.
And the authors point out the organizational change. Previous literatures focused on just
determinants or type or effect of innovation. But the authors look at the big picture which can
be recognized not ecology but some system or mechanism, when innovative firms enter to
market. So, we can get some implication. The first, with respect to innovation policy, firm
environment and structure of market will be considerable factors. For encouraging new firm
or industry, government should consider these factors for policy effects. Second, researchers
can investigate various environmental factors and properties of innovation. For instance, we
can try to exam the strategy which small firms established for market penetration with new
technology.
■ Critiques
1. During reading this paper, I can’t help but wonder what happened to small firms when
entering market. SMEs always are recognized as a disadvantaged player in market. But, the
author said that “most radical innovations occur within new entrants attempting to break into
an established set of competitors, rather than within firms whose capital and resources are
tied up in the existing technology” I can agree the first passage that “most radical innovations
occur within new entrants attempting to break into an established set of competitors”.
However I think the existing firms are more likely to perform radical innovation. Because
existing firms have more capital and competence of R&D, so they can make the structure of
market more solidly. For this dominating position, existing firms would likely to invest for
developing innovative technology consistently.
2. I considered that Case study can be performed with not just number of firms in market but
with market share. Market share data will give us more extensional result for competition.
For instance, It will be found a significant implication that we investigate the market structure
using market share during entering new firms with innovation technology.
3. There was no consideration about factors that can influence to market structure and
competition such as degree of market openness, size of each market, government policies,
and degree of development of Forward-backward industries.
4. The properties of industry are also considered as a important determinant factor of
competition degree. The authors suggest that the performance of products be increased when
competition intensifying. But I wonder there are some industries which the performance
growth rate is slowing following intensive competition. For example, There can be some
industry or market which focused on just price for competition.