QAQC Report 5

Selected article: Plummer & Acs, 2014

Quote: “Our analysis favors the opposite view—namely, that localized competition is the key to
innovation. Thus, it seems that entrepreneurs and incumbent firms are indeed rivals in a “struggle for
ideas” and innovations and that the actions of one drive the actions of the other.”

Argument: In this report, the authors build on ‘the knowledge spillover theory of entrepreneurship’,
which explains the emergence of new ventures trough knowledge creation at incumbent firms as a
monopoly. This theory, however, looks at the opportunities that arise from ‘exploring’, but not at the
actual exploitation of these ideas. Therefore, the authors supplement this by looking at local
competition. The findings made as a result show that it is precisely local competition that is ‘key’ for
innovation. This explains the paradox in the quote, which begins with ‘the opposite view’. The first
finding shows, trough simultaneous equations, that more local competition leads to more knowledge
and higher rates of knowledge-driven entrepreneurship. In addition, the authors have proven that
the positive relationship between knowledge and the emergence of high-tech firms is negatively
moderated by more local competition. This means two things: namely that there are more
opportunities to discover new knowledge, but also that there are fewer opportunities to actually
exploit this knowledge. In short, it has great effect on innovation in contrast to incumbent firms.
Finally, the authors have investigated certain aspects that are central to the agglomeration theory.
They argue the fact that being close to companies, households and people reduces the
competitiveness and performance of incumbent firms trough better cooperation.

Questions: Does this theory completely wipe out the other theory about the fact that incumbent
firms have a great effect on innovation, or go the hand in hand? Is this theory up to date, because of
the fact that it focuses on California and Colorado in the 90’s, a time of much technologic innovation?

Connection: This article has some kind of connection with the article of Pe’er and Keil. They argue
the fact that agglomeration has a affect on the development or entry of new ventures. They
specifically consider resources and capabilities important on the development effect. On the other
hand, they paradox the ‘incumbent’ view, that describes that incumbent firms are key in the rise of
new entries. In contrast, they say that agglomeration is key. This relates to the Plummer and Acs
article, that show that close by people and companies ensure better cooperation and likelihood to
entry a market.