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Is Competition Good for Innovation? A Simple Approach to an Unresolved Question

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  • Schmutzler, Armin

Abstract

The relation between the intensity of competition and R&D investment has received a lot of attention, both in the theoretical and in the empirical literature. Nevertheless, no consensus on the sign of the effect of competition on innovation has emerged. This survey of the literature identifies sources of confusion in the theoretical debate. My discussion is mainly based on a unified model that simplifies the comparison of different results. This model is also applied to show which factors work in favor of a positive relation between competition and innovation.

Suggested Citation

  • Schmutzler, Armin, 2010. "Is Competition Good for Innovation? A Simple Approach to an Unresolved Question," Foundations and Trends(R) in Microeconomics, now publishers, vol. 5(6), pages 355-428, August.
    • Handle: RePEc:now:fntmic:0700000035
    DOI: 10.1561/0700000035
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    Citations

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    Cited by:

    1. Lambertini, Luca & Poyago-Theotoky, Joanna & Tampieri, Alessandro, 2017. "Cournot competition and “green” innovation: An inverted-U relationship," Energy Economics, Elsevier, vol. 68(C), pages 116-123.
    2. Aghion, Philippe & Akcigit, Ufuk & Howitt, Peter, 2014. "What Do We Learn From Schumpeterian Growth Theory?," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 2, chapter 0, pages 515-563, Elsevier.
    3. Philippe Aghion & Peter Howitt & Susanne Prantl, 2015. "Patent rights, product market reforms, and innovation," Journal of Economic Growth, Springer, vol. 20(3), pages 223-262, September.
    4. Ramiro de Elejalde & Carlos Ponce & Flavia Roldán, 2018. "Innovation and competition: evidence from Uruguayan firms," Documentos de Investigación 116, Universidad ORT Uruguay. Facultad de Administración y Ciencias Sociales.
    5. Benjamin Rene Kern & Juan Manuel Mantilla Contreras, 2014. "Mergers and the Incentives to Undertake Product Innovation Oriented R&D: First Steps Towards an Assessment Approach," MAGKS Papers on Economics 201417, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    6. G. F. Gori & L. Lambertini, 2014. "Trade, externalities, and the impact of asymmetric information on trade policy," Working Papers wp930, Dipartimento Scienze Economiche, Universita' di Bologna.
    7. Lambertini, Luca & Zaccour, Georges, 2015. "Inverted-U aggregate investment curves in a dynamic game of advertising," Economics Letters, Elsevier, vol. 132(C), pages 34-38.
    8. Feichtinger, Gustav & Lambertini, Luca & Leitmann, George & Wrzaczek, Stefan, 2016. "R&D for green technologies in a dynamic oligopoly: Schumpeter, arrow and inverted-U’s," European Journal of Operational Research, Elsevier, vol. 249(3), pages 1131-1138.
    9. Schmutzler, Armin, 2013. "Competition and investment — A unified approach," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 477-487.
    10. Christian Oertel & Armin Schmutzler, 2021. "Challenging the incumbent: entry in markets with captive consumers and taste heterogeneity," ECON - Working Papers 386, Department of Economics - University of Zurich.
    11. Christian Oertel & Armin Schmutzler, 2022. "Challenging the incumbent: Entry in markets with captive consumers and taste heterogeneity," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(4), pages 961-979, November.
    12. Jonathan B. Baker, 2016. "Exclusionary Conduct of Dominant Firms, R&D Competition, and Innovation," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 48(3), pages 269-287, May.

    More about this item

    Keywords

    Competition; Investment; Cost reduction; Industrial organization; Technology and innovation; Public policy;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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