Competition from Informal Firms and Product Innovation in EU Candidate Countries: A Bounded Rationality Approach

Dario Miocevic*, Maja Arslanagić-Kalajdžić, Selma Kadic-Maglajlic

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

This study extends the literature that has investigated firms' readiness to confront competition from informal (unregistered) firms by responding through intensified product innovation activities. Drawing on the bounded rationality perspective, we unravel new insights into the relationship between the threat from informal competitors and product innovation by identifying two external contingencies (intellectual property rights protection and regulatory quality) and two internal contingencies (export intensity and top manager's sector experience). In this way, the study acknowledges the immense differences that exist across developing markets, focusing on post-communist societies characterized with a medium level of economic development, limited market size, and weak institutional development. An empirical prototype of this type of context is exemplified in EU candidate countries. Therefore, our model estimates the effect of the threat from informal competitors on product innovation by testing firm-level data from five countries with EU candidate status. Our findings show that direct and positive relationship between the threat from informal competitors and product innovation is strengthened when: 1) intellectual property rights protection is weaker, 2) regulatory quality is higher, 3) the firm is an intesive exporter, and 4) the firm's top managers have less experience.
Original languageEnglish
Article number102365
JournalTechnovation
Number of pages10
ISSN0166-4972
DOIs
Publication statusPublished - 28 Jul 2021

Bibliographical note

Epub ahead of print. Published online: 28 July 2021.

Keywords

  • Informal competition
  • Regulatory quality
  • Rule of law
  • Export intensity
  • Top management experience
  • Product innovation

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