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Competition, Market Selection and Growth

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  • Vincenzo Denicolò
  • 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.

Suggested Citation

  • Vincenzo Denicolò & Piercarlo Zanchettin, 2010. "Competition, Market Selection and Growth," Economic Journal, Royal Economic Society, vol. 120(545), pages 761-785, June.
    • Handle: RePEc:ecj:econjl:v:120:y:2010:i:545:p:761-785
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    Citations

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    Cited by:

    1. Andreas Pollak, 2014. "Rising R&D Intensity And Economic Growth," Economic Inquiry, Western Economic Association International, vol. 52(4), pages 1427-1445, October.
    2. Bondarev, Anton & Dato, Prudence & Krysiak, Frank C., 2021. "Green Technology Transitions with an Endogenous Market Structure," Working papers 2021/07, Faculty of Business and Economics - University of Basel.
    3. Tatsuro Iwaisako & Kazuyoshi Ohki, 2019. "Innovation by Heterogeneous Leaders," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(4), pages 1673-1704, October.
    4. Philipp Weinscheink, 2010. "Entry and Incumbent Innovation," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2010_17, Max Planck Institute for Research on Collective Goods.
    5. Suzuki, Keishun, 2017. "Competition, Patent Protection, and Innovation in an Endogenous Market Structure," MPRA Paper 77133, University Library of Munich, Germany.
    6. Etro, Federico, 2008. "Growth leaders," Journal of Macroeconomics, Elsevier, vol. 30(3), pages 1148-1172, September.
    7. Di Ubaldo, Mattia, 2016. "Firms and trade in downturns," Economics PhD Theses 0416, Department of Economics, University of Sussex Business School.
    8. Federico Etro, 2006. "Market Leaders and Industrial Policy," Working Papers 103, University of Milano-Bicocca, Department of Economics, revised Nov 2006.
    9. Piercarlo Zanchettin & Vincenzo Denicolò, 2009. "Leadership Cycles," Discussion Papers in Economics 09/25, Division of Economics, School of Business, University of Leicester.
    10. Giammario Impullitti, 2007. "International Technological Competition and Optimal R&D Subsidies in the US: 1973-1990," 2007 Meeting Papers 747, Society for Economic Dynamics.
    11. Keishun Suzuki, 2020. "Competition, patent protection, and innovation with heterogeneous firms in an endogenous market structure," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(3), pages 729-750, June.
    12. Chu, Angus C. & Cozzi, Guido & Furukawa, Yuichi & Liao, Chih-Hsing, 2017. "Inflation and economic growth in a Schumpeterian model with endogenous entry of heterogeneous firms," European Economic Review, Elsevier, vol. 98(C), pages 392-409.

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