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Innovation and competitive pressure

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  • Vives, Xavier

    () (IESE Business School)

Abstract

The effects of competition on process and product innovation are analyzed, obtaining robust results that hold for a range of market structures. It is found that increasing the number of firms tends to reduce R&D effort, whereas increasing the degree of product substitutability, with or without free entry, increases R&D effort -provided that the total market for product varieties does not shrink. Increasing the total market size increases R&D effort and has ambiguous effects on the number of varieties offered, while decreasing the cost of entry increases the number of entrants and varieties but reduces R&D effort per variety. The framework and results shed light on empirical strategies to assess the impact of competition on innovation.

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Bibliographic Info

Paper provided by IESE Business School in its series IESE Research Papers with number D/634.

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Length: 53 pages
Date of creation: 10 Jun 2006
Date of revision:
Handle: RePEc:ebg:iesewp:d-0634

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Postal: IESE Business School, Av Pearson 21, 08034 Barcelona, SPAIN
Web page: http://www.iese.edu/
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Keywords: cost reduction; X-inefficiency; market concentration; market size; substitutability; product introduction; corporate governance; globalization;

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References

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