Competition, product and process innovation: an empirical analysis
AbstractCompetition has long been regarded as productivity enhancing. Understanding the mechanism by which competition affects innovation and productivity is therefore an important topic for economic policy. The main contribution of this paper is to disentangle the relationship between competition and two sides of innovation: product and process. I write down a model and discuss the conditions under which we can identify the causal mechanism. Overall I find that competition, measured by the number of competitors or market shares, has negative effects on product innovation and no effects on process innovation. The explanation is very simple. By shifting demand, competition directly changes the optimality condition for product but not for process innovation. Thus, competition has no direct effects on process innovations or, as a consequence, productivity.
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Bibliographic InfoPaper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2010-26.
Length: 28 pages
Date of creation: Jul 2010
Date of revision:
Publication status: Published by Ivie
competition; innovation; R&D; product innovation; process innovation;
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
- L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
- O30 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-08-06 (All new papers)
- NEP-BEC-2010-08-06 (Business Economics)
- NEP-COM-2010-08-06 (Industrial Competition)
- NEP-CSE-2010-08-06 (Economics of Strategic Management)
- NEP-IND-2010-08-06 (Industrial Organization)
- NEP-INO-2010-08-06 (Innovation)
- NEP-IPR-2010-08-06 (Intellectual Property Rights)
- NEP-KNM-2010-08-06 (Knowledge Management & Knowledge Economy)
- NEP-MIC-2010-08-06 (Microeconomics)
- NEP-REG-2010-08-06 (Regulation)
- NEP-TID-2010-08-06 (Technology & Industrial Dynamics)
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