Monday, November 2, 2009
Posted by D. Daniel Sokol
Tobias Kretschmer (Institute for Communication Economics, LMU Munich), Eugenio Miravete (Department of Economics, University of Texas at Austin), and José Pernías (Department of Economics, Universidad Jaume I de Castellón) explain Competitive Pressure and the Adoption of Complementary Innovations.
ABSTRACT: Liberalization of the European automobile distribution system in 2002 limits the ability of manufacturers to impose vertical restraints, leading to a substantial restructuring of the industry and increasing the competitive pressure among dealers. We estimate an equilibrium model of profit maximization to evaluate how dealers change their innovation strategies with this regime change. Using French data we evaluate the existence of complementarities among adoptions of innovations and the scale of production. We conclude that as firms expand their scale of production they concentrate their effort in one type of innovation only. Results are robust to the existence of unobserved heterogeneity.