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Competition and Innovation: An Inverted-U Relationship

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  • Howitt, Peter
  • Griffith, Rachel
  • Aghion, Philippe
  • Blundell, Richard
  • Bloom, Nick

Abstract

This paper investigates the relationship between product market competition and innovation. We find strong evidence of an inverted-U relationship using panel data. We develop a model where competition discourages laggard firms from innovating but encourages neck-and-neck firms to innovate. Together with the effect of competition on the equilibrium industry structure, these generate an inverted-U. Two additional predictions of the model—that the average technological distance between leaders and followers increases with competition, and that the inverted-U is steeper when industries are more neck-and-neck—are both supported by the data.

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File URL: http://dash.harvard.edu/bitstream/handle/1/4481507/aghion_invertedu.pdf
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Bibliographic Info

Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 4481507.

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Date of creation: 2005
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Publication status: Published in Quarterly Journal of Economics
Handle: RePEc:hrv:faseco:4481507

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  1. Dasgupta, Partha & Stiglitz, Joseph, 1980. "Industrial Structure and the Nature of Innovative Activity," Economic Journal, Royal Economic Society, vol. 90(358), pages 266-93, June.
  2. Bronwyn H. Hall and Adam Jaffe, and Manuel Trajtenberg., 2001. "Market Value and Patent Citations: A First Look," Economics Working Papers E01-304, University of California at Berkeley.
  3. Aghion, Philippe, et al, 2001. "Competition, Imitation and Growth with Step-by-Step Innovation," Review of Economic Studies, Wiley Blackwell, vol. 68(3), pages 467-92, July.
  4. Ricardo J. Caballero & Adam B. Jaffe, 1993. "How High are the Giants' Shoulders: An Empirical Assessment of Knowledge Spillovers and Creative Destruction in a Model of Economic Growth," NBER Chapters, in: NBER Macroeconomics Annual 1993, Volume 8, pages 15-86 National Bureau of Economic Research, Inc.
  5. Grosfeld, Irena & Tressel, Thierry, 2001. "Competition, Corporate Governance: Substitutes or Complements? Evidence from the Warsaw Stock Exchange," CEPR Discussion Papers 2888, C.E.P.R. Discussion Papers.
  6. 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.
  7. Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: An Inverted-U Relationship," The Quarterly Journal of Economics, MIT Press, vol. 120(2), pages 701-728, May.
  8. Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1999. "Competition, Financial Discipline and Growth," CEPR Discussion Papers 2128, C.E.P.R. Discussion Papers.
  9. Richard Blundell & Alan Duncan & Costas Meghir, 1998. "Estimating Labor Supply Responses Using Tax Reforms," Econometrica, Econometric Society, vol. 66(4), pages 827-862, July.
  10. Nickell, Stephen J, 1996. "Competition and Corporate Performance," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 724-46, August.
  11. Blundell, Richard & Griffith, Rachel & van Reenen, John, 1999. "Market Share, Market Value and Innovation in a Panel of British Manufacturing Firms," Review of Economic Studies, Wiley Blackwell, vol. 66(3), pages 529-54, July.
  12. Philippe Aghion & Mark Schankerman, 1999. "Competition, entry and the social returns to infrastructure in transition economies," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 7(1), pages 79-101, March.
  13. Nicholas Bloom & John Van Reenen, 2000. "Patents, productivity and market value: evidence from a panel of UK firms," IFS Working Papers W00/21, Institute for Fiscal Studies.
  14. Blundell, Richard & Griffith, Rachel & Windmeijer, Frank, 2002. "Individual effects and dynamics in count data models," Journal of Econometrics, Elsevier, vol. 108(1), pages 113-131, May.
  15. Kevin A. Hassett & R. Glenn Hubbard, 1999. "Are Investment Incentives Blunted by Changes in Prices of Capital Goods?," NBER Working Papers 6676, National Bureau of Economic Research, Inc.
  16. Aghion, Philippe & Harris, Christopher & Vickers, John, 1997. "Competition and growth with step-by-step innovation: An example," European Economic Review, Elsevier, vol. 41(3-5), pages 771-782, April.
  17. Joaquim Oliveira Martins & Stefano Scarpetta & Dirk Pilat, 1996. "Mark-Up Ratios in Manufacturing Industries: Estimates for 14 OECD Countries," OECD Economics Department Working Papers 162, OECD Publishing.
  18. Oliver D. Hart, 1983. "The Market Mechanism as an Incentive Scheme," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 366-382, Autumn.
  19. Richard Blundell & James Powell, 2001. "Endogeneity in nonparametric and semiparametric regression models," CeMMAP working papers CWP09/01, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  20. Richard Blundell & Rachel Griffith & John Van Reenen, 1994. "Dynamic count data models of technological innovation," IFS Working Papers W94/10, Institute for Fiscal Studies.
  21. Chirinko, Robert S. & Fazzari, Steven M. & Meyer, Andrew P., 1999. "How responsive is business capital formation to its user cost?: An exploration with micro data," Journal of Public Economics, Elsevier, vol. 74(1), pages 53-80, October.
  22. Aghion, Philippe & Schankerman, Mark, 1999. "Competition, Entry, and the Social Returns to Infrastructure in Transition Economies," CEPR Discussion Papers 2052, C.E.P.R. Discussion Papers.
  23. Boone, Jan, 2000. "Competition," CEPR Discussion Papers 2636, C.E.P.R. Discussion Papers.
  24. Nicholas Bloom & John Van Reenen, 2002. "Patents, Real Options and Firm Performance," Economic Journal, Royal Economic Society, vol. 112(478), pages C97-C116, March.
  25. Philippe Aghion & Wendy Carlin & Mark Schaffer, 2002. "Competition, Innovation and Growth in Transition: Exploring the Interactions between Policies," William Davidson Institute Working Papers Series 501, William Davidson Institute at the University of Michigan.
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  1. ¿Por qué necesitamos a los â??talibanes de la competenciaâ??
    by Juan Santaló in Nada Es Gratis on 2012-01-26 07:00:41
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