Industry Size and the Distribution of R&D Investment

Abstract

We analyze the link between industry size and R&D spending distribution. We consider a monopolistically competitive market in which firms can invest in cost-cutting R&D by paying a fixed cost first. For an intermediate level of fixed cost, there is a unique equilibrium in which the market segments into investing and non-investing firms. Using this equilibrium, we study how the distribution and level of R&D expenditure changes as industry size increases. In particular, we show that, as the market size increases, R&D spending can become more concentrated. Data motivating these results are drawn from the Taiwanese and Korean semiconductor industries.