Emilio Paolucci, Paolo Neirotti, Danilo Pesce (Politecnico di Torino)

“ICT-Based Innovation and the Changing Nature of Competition: Evidence from Information Intensive Industries in Italy”

Abstract

Despite the increasing interest in Information and Communication Technology’s (ICT) potential to transform industry structure and competition, there is still not comprehensive evidence on how ICT-related innovations affect competitive dynamics due to the low number of industry-level studies. Strategic management literature indicates that, on the one hand, ICT diffusion can bring more competition, reduce entry barriers and appropriability regimes, create more opportunities of business growth for small entrepreneurial firms. On the other hand, ICT-related innovations can favour increased market concentration due to scale and network economies and to the fast and effective replication of best practices in business processes. The limited empirical evidence on this regard refers to the USA, whose national economy is inherently more information intensive and exhibits more favourable factor and demand conditions for ICT-related innovations. This paper tries to bridge this gap by assessing how the information intensity of a sector’s operations has affected competitive dynamics in Italy between 2002 and 2011.

By using panel regression models on 209 industries we found that information intensive industries showed higher labour productivity, higher market concentration and greater profit dispersion compared to their non-information intensive counterparts. Also, we found evidence of competitive disruption favoured by ICT in the higher turbulence in firms’ revenue and profitability that information intensive sectors show. Instead, we did not find disruptive phenomena produced by new entrants or by hi-growth small and medium enterprises (SMEs). Taken together, these findings indicate that ICT-related innovations have so far produced limited economic benefits at the country level, especially with reference to the capability of SMEs and entrepreneurial ventures to exploit ICT to pursue growth opportunities.