ABSTRACT
It is now widely recognised that the causal relationship between market structure and innovation runs in both directions. There is a very large body of literature on the question of how different market structures will generate different patterns of innovation. At the same time it is well recognised that the innovative activities of different firms will impact on market structure, although the body of economics literature on this is not as large. This latter linkage can happen either because innovative activity influences performance (and hence structure) or because of the connection between innovation and entry: often innovations by incumbents may act as a barrier to entry, but at the same time, especially in the formative stages of a market, innovation may come from new entrants.
