The Interplay Between Innovation and Marketing
The Interplay Between Innovation and Marketing
Ce (Matthew) Shi, Yucong Zhao
Year of Publishing:
Working Paper

This paper examines the long-standing question about the interplay between firms’ innovation and marketing decisions. We develop new perspectives that emphasize the relationships of different marketing activities to innovation and the dynamics of their relationships. Exploiting detailed data on firm-level expenditures and innovation outcomes (patents and new drug applications) and a quasi-experimental policy setting in China during 2009–2018, we examine how firms respond to policy-induced innovation incentives in China’s pharmaceutical industry. We find that as regional innovation policy reforms in China led to increased pharmaceutical R&D investments, firms significantly reduced non-ad marketing expenditures. However, firms raised future advertising expenditures when past R&D input generated innovation outputs. Our results indicate that while firm innovation substitutes non-ad marketing activities, advertising and innovation are dynamic complements. Our findings also underscore the importance of understanding the (unintended) impact of innovation policies on marketing activities.

More Research From These Scholars

Zheng Song, Michael Koenig, Kjetil Storesletten, Fabrizio Zilibotti,

We construct an endogenous growth model with random interactions where firms are subject to distortions. The TFP distribution evolves endogenously as firms seek to upgrade their technology over time either by innovating or by imitating other firms....

Hao Geng, Ce (Matthew) Shi, Zheng Song,

This report employs detailed transaction records from AlipayHK to evaluate the effectiveness of the 2021 Hong Kong Consumption Voucher scheme. We use a difference-in-differences (DID) design that compares the change in the spending of the voucher recipients...