In a previous paper (CALDERINI & GARRONE, 2001), we investigated the effect of liberalisation on the composition of the R&D activities undertaken by former telecommunications monopolists (Public Telecommunications Operators, PTOs). We argued that market turmoil is likely to provide firms with short-term incentives, shifting the allocation of resources towards applied and development activities. Basic and applied activities consequently respond in opposite ways to liberalisation: the former decrease whereas the latter increase. The model was tested on an original data set including innovative measures taken by incumbent PTOs in 17 European countries (1) . Specifically, we demonstrated that the basic research output (measured in terms of scholarly publications) declined, whilst applied research output (measured in terms of patents) rose. The evidence summarised above suggests that increased competition in product markets has opposite effects on the two components of R&D. Although our conclusions cannot be stretched much beyond this statement, they do merit some important remarks.
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