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Firm R&D Behavior and Evolving Technology in Established Industries

Olin School of Business, Washington University, St. Louis, Missouri 63130
Stephen M. Ross School of Business, University of Michigan, Ann Arbor, Michigan 48109
knott{at}wustl.edu
hposen{at}umich.edu

One of the key mechanisms of firms' strategic renewal is R&D, and a key driver of the intensity of R&D is industry context. A number of theories develop propositions linking industry factors to firm R&D behavior, but these theories lack consensus. To date, empirical tests have been unable to resolve the competing predictions because of lack of time-varying measures of technology. We create new measures for technology and then conduct a test of the competing theories. Our results indicate that the data best match a model of innovative behavior in which firms invest in R&D principally to regain eroded advantage rather than to pursue the new frontier.

Key Words: technological opportunity; appropriability; R&D