Industry Concentration and Digital Integration Innovation: The Moderating Roles of R&D Investment and State Ownership

This study examines the relationship between industry concentration and digital integration innovation building on theoretical arguments of the competition hypothesis by Arrow and the monopoly hypothesis by Schumpeter. Using panel data on Chinese A-share listed firms from 2006 to 2024, we examine how the process through which firms combine to which firms combine and recombine digital technologies with their existing technological domains varies with the industry-level competitive structure. Our results from fixed-effects regression analysis show that industry concentration, measured as the Herfindahl-Hirschman Index (HHI), has a statistically significant negative impact on the degree of digital integration innovation. This finding is in line with Arrow's argument that competitive market conditions are conducive to innovation. In addition, R&D investment alleviates this adverse association, indicating that companies possessing higher absorptive capacity can partially counteract the innovation-deterrent impact of concentrated markets. By contrast, state ownership reinforces the negative correlation, which implies that bureaucratic inflexibilities and weaker competitive forces can enhance the innovation-restricting impact of industry concentration on state-owned firms. Instrumental variable analysis and lagged specifications further confirm the robustness of these findings. Our work contributes to the literature on innovation by conceptually distinguishing digital integration innovation from conventional innovation and extending the competition-innovation debate to the digital technology convergence context.