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TECHNOLOGICAL CHANGE, FIRM SIZE AND INDUSTRIAL MARKET STRUCTURE
Abstract
Two prominent but opposing theories on technological change exist in the literature of industrial organization. What can be called the Schumpeter-Galbraith theory has two principal elements. On the one hand, technological change is positively related to firm size. Larger firm size produces greater technological change because of advantages that lie in economies of scale, greater financial strength, and increased diversification which frequently accompanies greater firm size. On the other hand, the Schumpeter-Galbraith theory also argues that a non-competitive market structure produces larger amounts of technological change. In this case increased monopoly-oligopoly (market) power is positively related to technological change. In addition, other structural features of a non-competitive market, e.g., non-price competition in the form of research rivalry, are permissive and/or causal conditions to the creation of substantial technological change. In contrast, the competitive thesis argues just the opposite. The above advantages to large firm size are quickly exhausted and provide no foundation for technological change. Moreover, monopoly power merely impedes technological change through such actions as oligopolistic collusion. What is required for technological change to occur are forces like the pressure on finances (profits) found in competitive markets. Consequently, it is the small, independent firms in a competitive market structure that will produce greater technological changes. To suggest which theory may be more valid multiple regression analysis was applied to the two main elements found in each theory. In Model I, technological change was evaluated relative to certain features of sampled firms in each of twenty-three separate manufacturing industries. Specifically, patents awarded to firms in an industry were regressed, linearly and nonlinearly, on firm sales, net income, net income rate (net income/sales), and diversification (number of four-digit SIC industries the firm operated in). The regression results revealed very little support for the Schumpeter-Galbraith thesis, as related to firm size, among the twenty-three industries. Model II evaluated the potential relationship of technological change to certain structural features of twenty-three four-digit manufacturing industries. The percentage of total industry patents held by the four largest firms in each industry was regressed on: industry four-firm concentration ratios, the largest four firms' (on the basis of sales) total net income, the diversification of the largest four firms (total number of four-digit industries), and dummy variables representing the height of overall entry barriers in each industry. The only Model II regression results that favored the Schumpeter-Galbraith thesis, as related to market structure, indicated that very high entry barriers were associated with greater levels of technological change.
Subject Area
Economic theory
Recommended Citation
KAUFFMAN, DANIEL EUGENE, "TECHNOLOGICAL CHANGE, FIRM SIZE AND INDUSTRIAL MARKET STRUCTURE" (1980). ETD collection for University of Nebraska-Lincoln. AAI8101218.
https://digitalcommons.unl.edu/dissertations/AAI8101218