Impact of Competition on Innovations of IT Industry: An Empirical Investigation

Tao Chen, Hsing Kenneth Cheng, Yong Jin, Shengli Li, Liangfei Qiu

Research output: Journal article publicationJournal articleAcademic researchpeer-review

1 Citation (Scopus)

Abstract

Innovation and competition are two major pillars in the information technology (IT) industry. In this paper, we examine the causal relationship between product market competition and innovations in the IT industry. We measure the innovations from both the quantity (number of patents) and the quality (number of non-self citations) perspectives. Based on the Herfindahl-Hirschman Index and natural experiments, we find robust evidence that the competition has a positive effect on the innovations of the IT industry. Specifically, after the exogenous shock to the market (import tariff cuts and thus increased industry competition), the number of patents per IT firm increases by 27.3 percent, and the number of non-self citations per IT firm increases by 38.2 percent on average. The effects are more pronounced in the more competitive sectors. Our study highlights the importance of the competition in the IT industry and suggests that the positive effect of competition on innovation in the IT context is likely to be driven by the parallel search effect. Our findings contribute to the recent policy debate and suggest that reducing import barriers may bring important welfare gains through innovations in the IT industry.

Original languageEnglish
Pages (from-to)647-666
Number of pages20
JournalJournal of Management Information Systems
Volume38
Issue number3
DOIs
Publication statusPublished - 2021

Keywords

  • import tariff
  • information technology
  • innovation
  • IT innovation
  • patents
  • Product market competition

ASJC Scopus subject areas

  • Management Information Systems
  • Computer Science Applications
  • Management Science and Operations Research
  • Information Systems and Management

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