Abstract

Our paper analyses the relationship between market structure and the composition of R&D activities. We formulate the hypothesis that when market structure is shuffled by a radical discontinuity, such as liberalisation, basic (long-run) and applied (short-run) research are likely to respond in opposite ways; specifically, the former decreases whereas the latter increases. The econometric model is tested on an original data set including innovation measures for R&D carried out by a set of telecommunications incumbents over the last two decades. In particular, the sample includes seventeen former European monopolists and basic and applied activities are proxied by, respectively, scholarly publications and patents. In coincidence of the liberalisation date, the telecommunications incumbents who were historically more active in R&D are shown to have reduced their publication activity; the opposite holds for patenting activities. In conclusion, we argue that, in the long-run, the dynamics outlined in the model are likely to prevent firms (industries) to sustain an appropriate rate of innovative activity.