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

Our final dataset comprises annual data on new product introductions, industry
concentration indices, number of firms, sales, sales growth and capital intensity measures
for nine segments (see Table 1) of the processed food industry for the twenty-two year
period 1983 to 2004.

4. Empirical Estimation Strategy and Results

A. The Effect of Market Concentration on New Product Introductions

The first objective of the study is to analyze the effect of market concentration on
new product introduction. Apart from market concentration, the prior empirical literature
has used market size (sales), market growth (sales growth) and number of firms as
important determinants of product introduction. We employ the following model to
estimate the effect of market concentration on new product introduction:

NPIit = α + β Cit + γ Xit + εit

where

NPIit = new product introductions in the food industry i in year t

Cit = concentration index in food industry i in year t

Xit = exogenous variables that includes sales, sales growth, number of firms, R&D
intensity¹⁰, capital intensity in food industry i in year t; and time variant economy wide
variables representing the demand factors like share of food expenditure in disposable
income, proportion of food expenditure in incurred on food away from home.

The above model is estimated with the two alternative measures of market
concentrations - HI and CI4. We have two sets of estimates - one set treats the market

¹⁰ The data on R&D expenditure available from Compustat is the total R&D expenditure that includes
expenditure on both product and process R&D. Hence it is not the exact measure of R&D investment for
product introduction.

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