The Effect of Market Structure on Innovation and R&D in Iran's Manufacturing Sector

The main purpose of this paper is to investigate the effect of market structure on innovation and R&D in Iran’s manufacturing sector. To do this، first، statistical data for Iran’s manufacturing sector has been gathered in International Standard Industrial Classification (ISIC) format، then mutual effects of concentration، innovation and R&D، advertising and profitability in different industrial activities have been analyzed using simultaneous equations system and Error Component Tow Stage Least Squares (EC2SLS) during 1996-2007. The results show that industrial concentration has a significant and inverted U-shaped relationship with innovation and R&D. In addition، R&D expenditure declines with increases in profitability. The investigation of the factors affecting manufacturing structure indicates that although innovation and R&D has no effect on manufacturing structure، but profitability and performance of top firms affect their concentration. Our findings exhibit the ineffectiveness of concentration and innovational behavior on industries performance; whereas increasing market concentration results in advertising expenses and innovational behavior of firms raises advertising expenses. Similarly، the lagged and accumulated effects of R&D confirm the existence of an inverted U-shaped relationship between concentration and R&D