THE DETERMINANTS OF INVESTMENT IN NEW TECHNOLOGY - AN EXAMINATION OF ALTERNATIVE HYPOTHESES

This article evaluates and finds support for the hypothesis that innov ative activity undertaken by firms, as measured by the level of invest ments in new technology, is a positive function of micro-market pressu res that they face from potential competitors. The empirical context s tudied is a cross-sectional sample of 40 firms that make up the princi pal portion of the local operating sector of the U.S. telecommunicatio ns industry. Firm size and potential market power are both found to be insignificant but negative, thus not validating two hypotheses much r esearched in the literature that innovative activity is a positive fun ction of firm size and potential market power. Demand-growth and imita tion effects are also controlled in the model and are found positively to induce investment in new technology.