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Competition, Market Selection and Growth

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  • Vincenzo Denicol�
  • Piercarlo Zanchettin

Abstract

We study the effect of the competitive selection process on the economy's rate of growth. In an extension of standard quality-ladder models of endogenous growth, we allow for the possibility that in each period several asymmetric firms (representing an endogenously determined number of past innovators) may be simultaneously active in an industry. Stronger competitive pressure then has conflicting effects on the incentive to innovate, lowering prices but also selecting the more efficient firms. We show that the market selection effect of competition always increases the incentive to innovate and find circumstances in which it can outweigh the traditional negative effect of lower prices. Copyright � The Author(s). Journal compilation � Royal Economic Society 2009.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 120 (2010)
Issue (Month): 545 (06)
Pages: 761-785

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Handle: RePEc:ecj:econjl:v:120:y:2010:i:545:p:761-785

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Cited by:
  1. Andreas Pollak, 2010. "Rising R&D Intensity and Economic Growth," DEGIT Conference Papers c015_057, DEGIT, Dynamics, Economic Growth, and International Trade.
  2. Piercarlo Zanchettin & Vincenzo Denicolò, 2009. "Leadership Cycles," Discussion Papers in Economics 09/25, Department of Economics, University of Leicester.
  3. Federico Etro, 2006. "Market Leaders and Industrial Policy," Working Papers 103, University of Milano-Bicocca, Department of Economics, revised Nov 2006.
  4. Philipp Weinscheink, 2010. "Entry and Incumbent Innovation," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2010_17, Max Planck Institute for Research on Collective Goods.

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