The impact of competition on growth and welfare is analyzed by developing a model in which the number of firms, profit margins, and innovation rates are endogenous. Different regimes of oligopolistic competition are distinguished. The tougher the price competition, the lower the profit margins for a given rate of concentration. This reduces the number of firms and product variety in a free entry equilibrium. Consequently, tougher competition implies larger firm size and higher rates of innovation since new technologies can be applied in a larger market. Oligopolistic pricing leads to underinvestment in firm-specific knowledge, even if interfirm spillovers are neglected. Copyright 1997 by The editors of the Scandinavian Journal of Economics.
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Volume (Year): 99 (1997) Issue (Month): 1 (March) Pages: 99-118 Download reference. The following formats are available: HTML
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