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A Minimum of Rivalry: Evidence from Transition Economies on the Importance of Competition for Innovation and Growth

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Author Info
Wendy Carlin (University College London)
Mark Schaffer (Heriot-Watt University)
Paul Seabright (IDEI, University of Toulouse-1)

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Abstract

This paper examines the importance of competition in innovation and the growth of firms. We make use of the large-scale natural experiment of the shift from an economic system without competition to a market economy to shed light on the factors that influence innovation by firms and their subsequent growth, thereby alleviating problems due to non-random clustering of innovation opportunities in mature market economies. We find evidence that monopolies innovate less and have weaker growth than firms facing a minimum of rivalry. The presence of competitors has both a direct effect on performance, and an indirect effect, through improving the efficiency with which the rents from market power in product markets are utilised to undertake innovation. There is also some less clear-cut evidence of an 'inverted-U', namely that the presence of a few rivals is more conducive to performance than the presence of many competitors.

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File URL: http://www.bepress.com/cgi/viewcontent.cgi?article=1284&context=bejeap
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Publisher Info
Article provided by Berkeley Electronic Press in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): contributions.3 (2004)
Issue (Month): 1 ()
Pages:
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Handle: RePEc:bpj:bejeap:v:contributions.3:y:2004:i:1:n:17

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Related research
Keywords: competition; productivity growth; innovation; rivalry; transition;

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Find related papers by JEL classification:
P0 - Economic Systems - - General
L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Boundaries of Public and Private Enterprise; Privatization; Contracting Out
O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Blundell, Richard & Griffith, Rachel & van Reenen, John, 1999. "Market Share, Market Value and Innovation in a Panel of British Manufacturing Firms," Review of Economic Studies, Blackwell Publishing, vol. 66(3), pages 529-54, July. [Downloadable!] (restricted)
  2. Christopher F Baum & Mark E. Schaffer & Steven Stillman, 2002. "Instrumental variables and GMM: Estimation and testing," Boston College Working Papers in Economics 545, Boston College Department of Economics, revised 14 Feb 2003. [Downloadable!]
    Other versions:
  3. Grosfeld, Irena & Tressel, Thierry, 2001. "Competition, Corporate Governance: Substitutes or Complements? Evidence from the Warsaw Stock Exchange," CEPR Discussion Papers 2888, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  4. Robert E. Hall, 1988. "The Relation Between Price and Marginal Cost in U.S. Industry," NBER Working Papers 1785, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Djankov, Simeon & Murrell, Peter, 2002. "Enterprise Restructuring in Transition: A Quantitative Survey," CEPR Discussion Papers 3319, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  6. Nickell, Stephen J, 1996. "Competition and Corporate Performance," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 724-46, August. [Downloadable!] (restricted)
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  7. Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1999. "Competition, Financial Discipline and Growth," CEPR Discussion Papers 2128, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  8. Philippe Aghion & Nicholas Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2002. "Competition and innovation: an inverted U relationship," IFS Working Papers W02/04, Institute for Fiscal Studies. [Downloadable!]
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  9. Hall, Robert E, 1988. "The Relation between Price and Marginal Cost in U.S. Industry," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 921-47, October. [Downloadable!] (restricted)
  10. Fuller, Wayne A, 1977. "Some Properties of a Modification of the Limited Information Estimator," Econometrica, Econometric Society, vol. 45(4), pages 939-53, May. [Downloadable!] (restricted)
  11. Wendy Carlin & Steven Fries & Mark Schaffer & Paul Seabright, 2001. "Competition and Enterprise Performance in Transition Economies: Evidence from a Cross-country Survey," William Davidson Institute Working Papers Series 376, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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  12. Jerry A. Hausman & Gregory Leonard & J. Douglas Zona, 1994. "Competitive Analysis with Differentiated Products," Annales d'Economie et de Statistique, ADRES, issue 34, pages 07, Avril-Jui. [Downloadable!]
  13. Bresnahan, Timothy F & Reiss, Peter C, 1991. "Entry and Competition in Concentrated Markets," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 977-1009, October. [Downloadable!] (restricted)
    Other versions:
  14. Aghion, Philippe, et al, 2001. "Competition, Imitation and Growth with Step-by-Step Innovation," Review of Economic Studies, Blackwell Publishing, vol. 68(3), pages 467-92, July.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Czarnitzki, Dirk & Kraft, Kornelius, 2006. "R&D and Firm Performance in a Transition Economy," ZEW Discussion Papers 06-33, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
    Other versions:
  2. Ferdinand Rauch, 2008. "An explanation for the inverted-U relationship between competition and innovation," Vienna Economics Papers 0813, University of Vienna, Department of Economics. [Downloadable!]
  3. Gorodnichenko, Yuriy & Svejnar, Jan & Terrell, Katherine, 2008. "Globalization and Innovation in Emerging Markets," IZA Discussion Papers 3299, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  4. Pradeep Mitra & Alexander Muravyev & Mark E. Schaffer, 2008. "Convergence in institutions and market outcomes: Cross-country and time-series evidence from the BEEPS surveys in transition economies," CERT Discussion Papers 0809, Centre for Economic Reform and Transformation, Heriot Watt University. [Downloadable!]
    Other versions:
  5. Correa, Paulo G. & Fernandes, Ana M. & Uregian, Chris J., 2008. "Technology adoption and the investment climate : firm-level evidence for Eastern Europe and Central Asia," Policy Research Working Paper Series 4707, The World Bank. [Downloadable!]
  6. Sabirianova Peter, Klara & Svejnar, Jan & Terrell, Katherine, 2005. "Foreign Investment, Corporate Ownership, and Development: Are Firms in Emerging Markets Catching Up to the World Standard?," IZA Discussion Papers 1457, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  7. Paul Seabright, 2005. "National and European Champions - Burden or Blessing?," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 6(2), pages 52-55, 08. [Downloadable!]
  8. Kresimir Zigic & Viatcheslav Vinogradov & Eugen Kovac, 2006. "Persistence of Monopoly, Innovation, and R-and-D Spillovers: Static versus Dynamic Analysis," Computing in Economics and Finance 2006 516, Society for Computational Economics. [Downloadable!]
  9. Simon Commander & Jan Svejnar, 2007. "Do Institutions, Ownership, Exporting and Competition Explain Firm Performance? Evidence from 26 Transition Countries," IZA Discussion Papers 2637, Institute for the Study of Labor (IZA). [Downloadable!]
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