Abstract: We construct a novel measure of technology sectoral disruptions (TSDs) using adynamic text-based spatial model of patents based on the extent to which innovationis suddenly highly correlated across multiple industries. We identify multiple TSDsoccurring over a 70-year period of time. Abnormal stock returns and insider tradingindicate that TSDs are largely unexpected and generate positive and long-lasting valuegains. Impacted small firms i nitially i ncrease e quity i ssuance, r educe e quity payouts,and increase both R&D and asset growth and experience increased valuations consistentwith Schumpeter’s 1912 theory of creative destruction and Arrow’s 1962 theory ofinnovation by smaller firms. Large firms, in contrast, on average reduce R&D andcapital expenditures and experience declining valuations and decreased sales growth.
Discussant: Bryan Seegmiller, Northwestern University
Abhiroop Mukerjee, Hong Kong University of Science & Technology
Bruno Pellegrino, Columbia University
Alminas Zaldokas, National University of Singapore
Yiman Ren, University of Michigan
Tomas Tornquist, Abu Dhabi Investment Authority
Abstract: Measuring the welfare impact of new product introductions is a long-standing challenge for economists. In this study, we make progress on this problem by leveraging the informational efficiency of equity markets and a scalable consumer demand model. We construct a novel database of new product announcements covering 20 years (2002-2021) and use stock market reactions to estimate the profits that these new products generate for the inventor firms. We then use the network oligopoly model of Pellegrino (2025) to measure the change in competitors' profits and consumer surplus induced by the new products, thus obtaining the dollar welfare generated. We find that: 1) new products introduced by U.S. publicly-traded firms generate substantial welfare gains, between 1 and 2.3% of US GDP per year; 2) a minority of the announcements account for most of the gains; 3) producer surplus accounts for roughly 40% of these gains. This latter figure is significantly higher than for existing products: we show that this is due to the fact that new product creation is concentrated among firms that have a high degree of market power.
Xiaohong Huang, Southwestern University of Finance and Economics
Siguang Li, Hong Kong University of Science & Technology
Jian Ni, Southwestern University of Finance and Economics
Abstract: We revisit how product market competition affects real efficiency by incorporating informational feedback from financial markets. While intensified competition reduces product market concentration, it lowers the value of speculators' proprietary information, discouraging information production and price discovery, with non-monotonic welfare effects. Market feedback can reduce or even dominate the positive effects of competition on welfare and efficiency, especially under highly informative prices for production or heightened market uncertainty. These findings underscore the importance of considering product-financial market interactions in antitrust policy. Our results remain robust when we consider discount rates, investor welfare, and cross-asset learning.
Discussant: Winston Dou, University of Pennsylvania
