| Summary: | The innovation of a particular company benefits the whole industry when innovation technology transfers to others. Similarly, the development and innovation in internet companies influence the development and innovation of the industry. This investigation has applied a unique approach of meta-frontier analysis to estimate and analyze the innovation in internet companies in China. A unique dataset of Chinese internet companies from 2000 to 2017 has been utilized to estimate and compare the innovation over the period of study. The change in technology gap ratio (TGR) and a shift in production function have translated into innovation which was overlooked by previous studies. It is found that the production function of internet companies is moving upward in the presence of external factors such as smartphones invention, mobile internet, mobile payments, and artificial intelligence, etc. Consequently, a sudden increase in TGR is captured due to the innovation of some companies. Hence, the average TE of the industry falls caused by the increased distance of other companies form industry production function. However, the innovation advantage defused when other companies start imitating and the average TE elevates. A steady increase in the TGR index revealed that the continuous innovation-based growth of some companies lifting the production frontier upward. This provides the opportunity for other companies to imitate and provides continuous growth in the industry. This study provides a novel methodological approach to measure innovation and also provide practical implication by empirical estimation of innovation in Chinese internet companies.
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