Cost Innovation And Market Structure: Theory And Positive Analysis

People did not stopped probing and arguing about the relationship between corporation innovation and market structure since the Schumpeter's hypothesis was presented more than half century ago, they have deeply developed the innovation theory by building mathematical and positive model for get a accordant conclusion, but because of the complex of the problem and some limit condition such as study method,variable measuring and so on ,they were failed to get a coherent result in advance ,so now it exist many kinds of saying about the relationship between corporation innovation and market structure. There are three kinds of view point was usual saw in text book such as positive linear , negative linear and invert U shape curve relationship with no-linear.We are trend to analyze the relationship between the corporation's cost innovation and market structure , this paper analyze the relationship between cost reducing innovation and market structure in a extend cost-revenue model which was introduced these variables such as innovation devotion, cost marginal reduction etc. we get the functional connection between innovation and market structure by solve innovational manufacturer's optimal innovation devotion on the condition of maximal profit in completely competitive market; we process the same analysis after the model was imported the variable of technology pill-over and intellectual property right protection ,then we get the conclusion which is inconsistent with Schumpeter's hypothesis that there exists a surely inverted U relationship between innovation devotion and market structure.In positive side, this paper choose our country's ten industry which represented clear cost declining trend in the period from 1990 to 2006 to establish a panel-data model ,then process regression analysis after filter the cycle factor ,we found that there exist an explicit inverted U curve relationship between cost innovation and market structure;we also found that there exist strong relativity between cost innovation and product demand elasticity ,intellectual protect right by setting relative variable.We have got some conclusion by doing the up-related theory and positive analysis:First of all, the relationship between corporation cost innovation and market structure is an invert U shape curve with no-linear. The utmost corporation cost innovation devotion will happen neither in the complete monopolize market nor complete competition market, but in a market between the two, which means the cost innovation devotion will enhance with the number of corporation increasing, and after come to an ultimate value it will reduce as the number of corporation decreasing.Second, the utmost market structure gets a strong character of industry, the variable strong relating to industry such as product demand elasticity, innovation efficiency will affect the utmost market structure and cost innovation devotion, which means it is necessary to distinguish the industry by set related variable to get every industry's conclusion.The last but not the end, institutional factor will remarkably affect cost innovation devotion. We find intellectual property right have a positive affection to cost innovation devotion in total, but when it turn to every industry, different industry have different conclusion ,even some industry present a negative relationship, we attribute this diversity to our country's un-homogenous development in structure.Basing on the theory and positive conclusion, then connecting our country's economical and institutional developing status, we have advanced some policy suggestion for accelerate our country's cost innovation devotion of corporation.