Profitable intangible investments and market power – barriers and opportunities for firms with different size (D5.7)

This paper analyzes the role of technical change and market power for innovative growth in firms of different sizes and how structural capital of R&D and organizational capital (OC) interact with these. Innovation-work biased technical change (IBTC) is analogous to skill-biased technical change and derived from the innovation labor participation weighted by relative returns of innovation labor. In the systems estimation, market power is found to be an important driver of productivity and profits, and independent of firm size or technology type. Our results suggest that the greatest barriers for good performance are not physical but rather tied to the efficient use of structural capital – especially organizational capacity can cause limits to enhance productivity. The productivity puzzle relates to decreasing markups over time, since IBTC has had an opposite trend so that intangibles have become the major drivers of firm performance.

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