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Price Competition, Innovation and Profitability: Theory and UK Evidence

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Symeonidis, George

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Abstract

This Paper examines the effect of price competition on innovation, market structure and profitability in R&D-intensive industries. The theoretical predictions are tested using UK data on the evolution of competition, concentration, innovation counts and profitability over 1952-77. The econometric results suggest that the introduction of restrictive practices legislation in the UK had no significant effect on the number of innovations commercialized in previously cartelized R&D-intensive manufacturing industries, while it caused a significant rise in concentration in these industries. In the short run profitability decreased, but in the long run it was restored through the rise in concentration.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2816.

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Date of creation: May 2001
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Handle: RePEc:cpr:ceprdp:2816

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Related research
Keywords: Cartels; Innovation; Manufacturing; Market Structure; Price Competition; Profitability; UK;

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Find related papers by JEL classification:
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives

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. George Symeonidis, 1999. "Price and non-price competition with endogenous market structure," Economics Discussion Papers 501, University of Essex, Department of Economics.
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  2. Blundell, Richard & Griffith, Rachel & Van Reenen, John, 1995. "Dynamic Count Data Models of Technological Innovation," Economic Journal, Royal Economic Society, vol. 105(429), pages 333-44, March. [Downloadable!] (restricted)
    Other versions:
  3. Scherer, F M & Huh, Keun, 1992. "R&D Reactions to High-Technology Import Competition," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 202-12, May. [Downloadable!] (restricted)
  4. Jerry A. Hausman & Bronwyn H. Hall & Zvi Griliches, 1984. "Econometric Models for Count Data with an Application to the Patents-R&D Relationship," NBER Technical Working Papers 0017, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Klepper, Steven & Simons, Kenneth L, 1997. "Technological Extinctions of Industrial Firms: An Inquiry into Their Nature and Causes," Industrial and Corporate Change, Oxford University Press, vol. 6(2), pages 379-460, March.
  6. Chaim Fershtman & Ariel Pakes, 2000. "A Dynamic Oligopoly with Collusion and Price Wars," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 207-236, Summer.
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  7. Chaim Fershtman & Eitan Muller, 1986. "Capital Investments and Price Agreements in Semicollusive Markets," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 214-226, Summer. [Downloadable!] (restricted)
  8. Acs, Zoltan J & Audretsch, David B, 1988. "Innovation in Large and Small Firms: An Empirical Analysis," American Economic Review, American Economic Association, vol. 78(4), pages 678-90, September. [Downloadable!] (restricted)
  9. Geroski, P A, 1990. "Innovation, Technological Opportunity, and Market Structure," Oxford Economic Papers, Oxford University Press, vol. 42(3), pages 586-602, July. [Downloadable!] (restricted)
  10. Symeonidis, George, 2000. "Price Competition and Market Structure: The Impact of Cartel Policy on Concentration in the UK," Journal of Industrial Economics, Blackwell Publishing, vol. 48(1), pages 1-26, March. [Downloadable!] (restricted)
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  11. Fershtman, Chaim & Gandal, Neil, 1994. "Disadvantageous semicollusion," International Journal of Industrial Organization, Elsevier, vol. 12(2), pages 141-154, June. [Downloadable!] (restricted)
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  12. Bertschek, Irene, 1995. "Product and Process Innovation as a Response to Increasing Import and Foreign Direct Investment," Journal of Industrial Economics, Blackwell Publishing, vol. 43(4), pages 341-57, December. [Downloadable!] (restricted)
  13. Sutton, John, 1996. "Technology and market structure," European Economic Review, Elsevier, vol. 40(3-5), pages 511-530, April. [Downloadable!] (restricted)
  14. George Symeonidis, 1996. "Innovation, Firm Size and Market Structure: Schumpeterian Hypotheses and Some New Themes," OECD Economics Department Working Papers 161, OECD, Economics Department. [Downloadable!]
  15. Schott, Kerry, 1976. "Investment in Private Industrial Research and Development in Britain," Journal of Industrial Economics, Blackwell Publishing, vol. 25(2), pages 81-99, December. [Downloadable!] (restricted)
  16. Davidson, Carl & Deneckere, Raymond J, 1990. "Excess Capacity and Collusion," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(3), pages 521-41, August. [Downloadable!] (restricted)
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  17. Yarrow, G K, 1985. "Welfare Losses in Oligopoly and Monopolistic Competition," Journal of Industrial Economics, Blackwell Publishing, vol. 33(4), pages 515-29, June. [Downloadable!] (restricted)
  18. Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1999. "Competition, Financial Discipline and Growth," Review of Economic Studies, Blackwell Publishing, vol. 66(4), pages 825-52, October. [Downloadable!] (restricted)
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Full references

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. Mark Rogers, 2003. "Competition, Agency and Productivity," Melbourne Institute Working Paper Series wp2003n20, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne. [Downloadable!]
    Other versions:
  2. Andy Cosh & Xiaolan Fu & Alan Hughes, 2005. "Management characteristics, collaboration and innovative efficiency: evidence from UK survey data," ESRC Centre for Business Research - Working Papers wp311, ESRC Centre for Business Research. [Downloadable!]
  3. Wilfred Dolfsma & Gerben van der Panne, 2007. "Innovations from SMEs or Large Firms? Sector Structure and Dynamics," Working Papers 07-30, Utrecht School of Economics. [Downloadable!]
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