Centre for Competition Policy
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Working Paper 18-4
The Effect of Market Consolidation on Innovation in the HDD Industry
AUTHORS: Anna Rita Bennato, Stephen Davies, Franco Mariuzzo & Peter Ormosi
ABSTRACT: 
There is an extensive literature on the relationship between market competition and innovation. We contribute to this literature by taking an exhaustive, industry-focused look at how innovation evolved following the 5-to-3 consolidation of the world-wide hard disk drive (HDD) industry. Instead of using a single measure of innovation, the HDD industry offers a rare opportunity to look at possible changes in R&D expenditure, patent activity, the number of new products, and the unit cost of new products at the same time. This is important for two reasons: (1) it allows us a more informed evaluation of how innovation changed as a result of increasing market concentration, and (2) it enables us to test the relative performance of data on R&D spending and patent activity in measuring innovation. For the former, we find no evidence that the consolidation had a negative impact on innovation. For the latter, we provide evidence that R&D spending is a good predictor of unit costs and the number of new products, but patent activity offers little extra explanatory power.
CITATION: Bennato AR, Davies S, Mariuzzo F & Ormosi P (2018) "The effect of market consolidation on innovation in the HDD industry", CCP Working Paper 18-4
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