Does Market Concentration Promote or Reduce New Product Introductions? Evidence from US Food Industry

measures on sales, capital expenditure, value of property plants and equipments and R&D
expenditure. Compustat contains annual operating data on companies listed on the major
US stock exchanges and it does not include the private (non-listed) companies. Since the
publicly traded companies are the market leaders accounting for majority of market sales,
R&D and capital expenditure, our measures of these variables may not be exhaustive, but
they provide adequate aggregated industry level (represented by the various food
categories presented in Table 1) measures that represent the heterogeneity across the
different segments of the processed food industry, which we need for the purpose of this
study. We match the industry data to different product categories corresponding to the
new product introduction categories based on the SIC codes. We grouped some
categories of food introductions together to be able to map them to the industry data.
Large multi-product companies (such as Unilever and Nestle) that produce a large veriety
of processed food posed a challenge for classification into specific segments of processed
food industry. We used the annual reports of such companies to carefully allocate their
financial data to different food categories based on the share of revenue coming from the
different processed food segments.

Using the annual sales data, we construct the following alternative market
concentration measures that have been widely used in the literature⁹:

Herfindahl Index (HI): H = ∑ (s_i²) with i=1,2,.....,N

Four firm concentration index (CI4): CI4 = ∑ (si²)   with i=1,2,3,4 where the

firms are ranked in descending order of their market share.

⁹ Roder, Herrmann and Connor, 2000; Alexander, 1997; Zellner, 1989; Connor, 1981

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