Public procurement of innovation policy: Competition regulation, market structure and dominant design

AuthorRuyi Wan
DOIhttps://doi.org/10.1108/JOPP-14-04-2014-B002
Pages473-494
Publication Date01 Mar 2014
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JOURNAL OF PUBLIC PROCUREMENT, VOLUME 14, ISSUE 4, 473-494 WINTER 2014
PUBLIC PROCUREMENT OF INNOVATION POLICY: COMPETITION
REGULATION, MARKET STRUCTURE AND DOMINANT DESIGN
Ruyi Wan*
ABSTRACT. Recently, industry policy researchers have been more interested
in public procurement, as a “demand side” policy approach. The mainstream
exclusively targeted public procurement demand to push innovation and
furthermore leads to the “first mover strategy.” This paper points out that
procurement decisions are likely to have a broader innovation impacts, and
mostly via their influence on intermediate outcomes such as the structure of
industrial competition. In this paper, the author explores the specific
features of public procurement as a competition shaping instrument, and
conducts an empirical study to measure the correlations among the
competition regulation of procurement contracts awarding, industry
competition structure and dominant design cultivation efficiency.
INTRODUCTION
Public procurement was first introduced as an industrial policy
instrument about 30 years ago (Geroski, 1990; Rothwell, 1984). And
now public procurement is increasingly regarded as an important
feasible instrument for furthering the goals of innovation policy
(Uyarra & Flanagan, 2010). Policy aspirations in relation to public
procurement of innovation (PPI) have been backed by the
recommendations of a number of inquiries, reports and policy
documents, especially by EU countries (Edler, Ruhland, & Hafner,
2005; Lember, Kalvet, Kattel, Penna, & Suurna, M., 2007; Rigby et al.,
2012; Stern, Hellman, Rignders-Nagle, Terrell, & Astrom, 2011). In a
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* Ruyi Wan is Ph. D. student of School of Policy and Public Management,
Tsinghua University; and a Visiting Fellow (2013-2014), Kennedy School of
Government, Harvard University. His research interests are in industry policy
and public procurement. The views in this article are not those of his
organization.
Copyright © 2014 by PrAcademics Press
474 WAN
clear demonstration of the advantage of the demand-side approach,
policy discussion almost invariably points to the lead market strategy
(Tushman & Murmann, 1998; BMBF, 2010), which is aimed at
producing a dominant design in the international marketplace
(Anderson & Tushman, 1990; Utterback, 1994).
In the debate on lead market strategy and dominant design,
recent research has focused increasingly on pioneering demand as a
driving force of innovation and, moreover, identified as the first-mover
strategy (Geroski, 1990; Frynas & Mellahi, 2006; Magee & Galinsky,
2007). Some research has tried to fill the other gaps in demand-
driven policy. Rolfstam (2005) applied the theory of interactive
learning (Lundvall, 1988) in order to view public procurement as a
special form of user-producer interaction. After intellectual property
rights (IPR) strategies had become more crucial in global technology
competition, Fernando Branco (2002) took into account the influence
of the adoption of technological standards and examined the
relationship between procurement favouritism and the adoption of
technological standards among suppliers. Increasingly, research has
shown that procurement decisions are likely to have a broader impact
on innovation, mostly through their influence on intermediate
outcomes such as the intensity of competition, the structure of
industrial competition and network effects (Cabral, Cozzi, Denicolo,
Spagnolo, & Zanza, 2006; Uyarra & Flanagan, 2010).
However, despite this policy interest, there is little research that
closely examines intermediate outcomes such as industrial
competition, or offers any significant empirical evidence on the
implementation of such policy aspirations. In this paper, this study
explores the specific features of public procurement as a competition-
shaping instrument, and conducts an empirical study to measure the
correlations between competition regulation on awarding
procurement contracts, the structure of industrial competition and
dominant design cultivation efficiency.
THEORETICAL BACKGROUND
Dominant Design and Lead Market Strategy
Dominant design is a technology management concept to identify
key technological features that become a de facto standard of a
certain product (Anderson & Tushman, 1990; Utterback, 1994;

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