Innovation and Market Structure

IN A recent article in this Journal, Edwin Mansfield presented the innovation histories of the iron and steel, petroleum refining, and bituminous coal industries and ingeniously interpreted the data using a series of statistical models.2 Among the questions that he investigated is the following: What factors influence the proportion of innovations that will be introduced by the four largest firms in an industry? The present analysis raises a somewhat different but related question: What factors influence the relative proportion of innovations (that is, proportion of innovations in relation to market share) that will be introduced by the four largest firms? Formulating the question in this way permits us to focus directly on the issue of how monopoly power affects the relative contributions of these largest firms. I