Determinants of new product introductions in the US food industry: a panel-model approach

Economic theory suggests that market structure variables influence technica l change, growth and new product introductions. Based on a broad data set f or new product introductions in various food industries, it is elaborated i n this article how market structure variables affect innovative activities in the US food sector. It is different from earlier studies in the way that cross-sectional and time-series data are combined and panel data models ar e used in the econometric analysis. A major result is that new product intr oductions are driven by market structure variables and industry-specific ch aracteristics, i.e. fixed effects. A significant determinant of new food pr oduct introductions is the concentration ratio which affects the number of innovations in a nonlinear form. The fixed-effects estimates reveal a U-typ e effect of concentration on innovations. Furthermore, the number of firms, the degree of existing product differentiation and the size of a market sh ow a positive influence on the number of innovations. From a methodological point of view, plain OLS models yield biased results on the concentration- innovation linkage and on the relationship between the size of a market and innovations. Therefore, it is very important to include sector-specific ch aracteristics as is done in the fixed-effects models.