Underinvestment and Incompetence as Responses to Radical Innovation: Evidence from the Photolithographic Alignment Equipment Industry
Year: 1993
Type: article
Abstract: Neoclassical theory suggests that when an industry is shaken by radical technological change, incumbent firms will be replaced by entrants because entrants have greater strategic incentives to invest in radical innovation. Organizational theory suggests that incumbent firms fail in the face of radical innovation because they fall prey to inertia and complacency. I show that if organizational effects are significant, tests of neoclassical theory in isolation will yield spurious or noisy results. Using data derived from a detailed field study of the photolithographic alignment equipment industry, I show that as neoclassical theory predicts, established firms invested more than entrants in incremental innovation, but that in agreement with organizational theory, the research efforts of incumbents seeking to exploit radical innovation were significantly less productive than those of entrants.
Source: The RAND Journal of Economics
DOI: 10.2307/2555761
Author: Rebecca Henderson
Language: English
Topic: Firm Innovation and Growth
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
Funder: Harvard Business School
OpenAlex ID: W2024205899