The Effect of Research & Development Investments on New Firm Entry

Abstract

The entry of new competitors operates as a balancing force against high levels of industrial concentration and the abuse of dominant position by firms with large market shares. This paper’s goal is to examine theoretically the impact of Research & Development investments on new firm entry. While dominant economic theory supports that large R&D investments are a prerequisite for technological change and economic growth, so that large incumbent firms are considered to have an advantage against new, typically smaller firms, theoretical and empirical research has shown that this may not be the case. Small firms’ contribution in innovation and economic development is far greater than expected.