ABSTRACT
The Schumpeterian legacy has fostered exploration of the links between innovative performance and market structure. Market structure encompasses economically important features of the business environment including the number and size distribution (concentration) of a market’s sellers, barriers to entry, firms’ sizes, and diversification. The literature reviewed here seeks to explain how innovations generate social and private benefits in alternative market structures ranging from monopoly to pure competition. Market structure affects the generation of those benefits, because it affects firms’ perceptions of the private benefits and costs of innovation. The purposeful behavior of firms seeking gain then varies with market structure. When social and private benefits and costs diverge, the innovative investment in a market will not typically be optimal.
