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Competition and Innovation in Product Quality: Theory and Evidence from Eastern Europe and Central Asia

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  • Karaman Fatma Nur

    (Department of Economics, Yasar University, Izmir 35100, Turkey)

  • Lahiri Sajal

    (Department of Economics, Southern Illinois University Carbondale, Carbondale, IL 62901, USA)

Abstract

This paper examines how the degree of competition affects incentives to innovate in product quality in a symmetric Cournot oligopolistic model. We model product quality in a quality-ladder framework and find an inverted-U shaped relationship between the number of firms in an industry and R&D efforts in innovation. We test this theoretical prediction using firm-level data for Eastern European and Central Asian countries from the Business Environment and Enterprise Performance Survey and find strong support for it.

Suggested Citation

  • Karaman Fatma Nur & Lahiri Sajal, 2014. "Competition and Innovation in Product Quality: Theory and Evidence from Eastern Europe and Central Asia," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 14(3), pages 1-36, July.
    • Handle: RePEc:bpj:bejeap:v:14:y:2014:i:3:p:36:n:2
    DOI: 10.1515/bejeap-2012-0013
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    Cited by:

    1. Luca Farè, 2022. "Exploring the contribution of micro firms to innovation: does competition matter?," Small Business Economics, Springer, vol. 59(3), pages 1081-1113, October.
    2. Fatma Nur Karaman Kabadurmus, 2021. "Innovation Challenges in South Asia: Evidence from Bangladesh, Pakistan and India," Journal of South Asian Development, , vol. 16(1), pages 100-129, April.

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