Chapter 55. Schumpeterian oligopolistic rivalry

Innovation is at the heart of Schumpeterian oligopolistic rivalry that he propounded in his later work. Such innovations are not only inspired by the pathbreaking entrepreneurs but also included successful intrapreneurs as salaried managers located in the R&D departments of the large firms. This analysis led to one of the most researched Schumpeterian hypotheses, that is, innovation is higher in concentrated industries. Extant theoretical literature builds on this hypothesis by exploring the counterargument, the role of entry barriers, industry-specific dynamics and underlying technological regimes. A significant theoretical model posits an inverted U shape relationship between competition and innovation where intense competition enhances innovation in frontier firms but discourages in others. The vast empirical literature based on industry, firms, and micro-econometric data, produces, at best, meagrely supportive results that underscore the heterogeneity of industries and countries.