Market Concentration and Innovation: New Empirical Evidence on the Schumpeterian Hypothesis

This paper conducts a new empirical examination of the Schumpeterian hypothesis that more concentrated industries stimulate innovation. It is found that the lack of evidence for the hypothesized relationship in recent empirical work is largely due to the use of simple patent counts as the measure of innovative output. When citation-weighted patent count, arguably a more accurate measure of innovative output, is used, this paper finds empirical evidence in support of the Schumpeterian hypothesis. *I would especially like to thank Prof. Bronwyn H. Hall at UC Berkeley for her expeditious provision of the data used in this research. In preparing this paper I benefited from invaluable comments from Professors Robert Mcnown, Yongmin Chen, Jose Canals -Cerda, Randy Walsh and Nicholas Flores. I am also indebted to Thitima Puttitanun for taking the time to proof read and offer valuable comments. I am responsible for any remaining errors.