Industry Concentration And Allocation Of Resources To Basic

Schumpeter (1942) and his colleagues consider concentrated industry to be the ideal vehicle for advancing industrial technology. Empirical evidence on the Schumpeterian hypothesis that a concentrated industry allocates relatively more resources to its research and development activities has not been conclusive. One reason may be that the hypothesis is too general and too vague. Any such theory remains meaningless in the absence of a formal definition of a comparable homogeneous industry. A heterogeneous industry falls as far short of its Pareto optimal investment as does its comparable homogeneous industry. The analysis suggests that, in some cases, a greater degree of heterogeneity in industry characteristics may call for greater government involvement.