Comments on "Fortune Favors the Prepared Firm." (response to article by Wesley M. Cohen and Daniel A. Levinthal, Management Science, vol. 40, p. 227, 1994)

Article Abstract:

The weaknesses of the concept of a firm's 'absorptive capacity' as introduced by Cohen and Levinthal (1994) in their seminal paper, 'Fortune Favors the Prepared Firm' are pointed out. Its proponents define 'absorptive capacity' as the ability of an organization to assess, adopt and take advantage of extramural technological developments, which contributes to its industrial competitiveness. While the concept has merit, Cohen and Levinthal's argument is weakened by its failure to recognize the firm's ability to defend itself against the threat of an external technology as an essential element of absorptive capacity. Their mathematical model examining the incentives of a rational firm to investment in absorptive capacity also contains numerous inconsistencies and shortcomings, thus casting doubts on the validity of their results.

Analysis, Technological innovations, Organizational effectiveness

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Industry concentration and allocation of resources to basic research

Article Abstract:

The Schumpeterian school believes that concentrated industry is the optimal way to achieve efficient advancement of research and development. A study of resource allocation by specific kinds of concentrated industries to specific kinds of research and development reveals that for two industries with the same number of companies, a concentrated industry falls as short of its Parato optimal investment in general research as its comparable homogeneous counterpart.

Management, Planning, Efficient market theory, Industrial concentration

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A homogeneous industry model of resource allocation to basic research and its policy implications

Article Abstract:

Various factors related to an industry's division and allocation of resources for the area of general research are explored. The in-depth numerical example can used to certify and to interpret the model according to realistic criteria. The research supports the belief that industry allocations made to fundamental research is suboptimal even when companies are allowed to continue with basic research together though voluntarily.

Management science, Models, Finance

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