Can Small Firms Innovate Away From Competition?

In this paper we test whether innovation allows entrepreneurs to navigate their way out of highly com-petitive markets into calmer waters where competitive pressures are reduced. In doing so, we establishthree key findings: first, in line with the Schumpeterian creative destruction theory, our results docu-ment a decreasing marginal effect of prior innovation on consecutive perceived competition, an effectthat is stronger for small firms operating in more competitive markets; then, we highlight the differ-ent synergistic effects generated by the complementarity between tangible and intangible innovationactivities in competitive and oligopolistic markets that support the Schumpeterian view; finally, weestablish that such synergies have proven crucial in navigating out of the COVID-19 pandemic.