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Competition and Innovation: An Inverted U Relationship

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  • Philippe Aghion
  • Nicholas Bloom
  • Richard Blundell
  • Rachel Griffith
  • Peter Howitt

Abstract

This paper investigates the relationship between product market competition (PMC) and innovation. A growth model is developed in which competition may increase the incremental profit from innovating; on the other hand, competition may also reduce innovation incentives for laggards. There are four key predictions. First, the relationship between product market competition (PMC) and innovation is an inverted U-shape. Second, the equilibrium degree of technological neck-and-neckness' among firms should decrease with PMC. Third, the higher the average degree of neck-and-neckness' in an industry, the steeper the inverted-U relationship. Fourth, firms may innovate more if subject to higher debt-pressure, especially at lower levels of PMC. We confront these predictions with data on UK firms' patenting activity at the US patenting office. They are found to accord well with observed behavior.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9269.

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Date of creation: Oct 2002
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Publication status: published as Aghion, Philippe, Nick Bloom, Richard Blundell, Rachel Griffith and Peter Howitt. "Competition And Innovation: An Inverted-U Relationship," Quarterly Journal of Economics, 2005, v120(2,May), 701-728.
Handle: RePEc:nbr:nberwo:9269

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  1. Bronwyn Hall & Adam Jaffe and Manuel Trajenberg, 2000. "Market Value and Patent Citations: A First Look," Economics Series Working Papers 2000-W17, University of Oxford, Department of Economics.
  2. Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1999. "Competition, Financial Discipline and Growth," Scholarly Articles 12490416, Harvard University Department of Economics.
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  7. Hassett, Kevin A & Hubbard, R Glenn, 1998. "Are Investment Incentives Blunted by Changes in Prices of Capital Goods?," International Finance, Wiley Blackwell, vol. 1(1), pages 103-25, October.
  8. Philippe Aghion & Nicholas Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2002. "Competition and Innovation: An Inverted U Relationship," NBER Working Papers 9269, National Bureau of Economic Research, Inc.
  9. 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.
  10. 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 Working Papers 4370, National Bureau of Economic Research, Inc.
  11. 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.
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  13. Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1999. "Competition, Financial Discipline and Growth," Review of Economic Studies, Wiley Blackwell, vol. 66(4), pages 825-52, October.
  14. 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.
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  18. Harris, Christopher & Howitt, Peter & Vickers, John & Aghion, Philippe, 2001. "Competition, Imitation and Growth with Step-by-Step Innovation," Scholarly Articles 12375013, Harvard University Department of Economics.
  19. 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.
  20. 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.
  21. 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.
  22. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  23. 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.
  24. Boone, Jan, 2000. "Competition," CEPR Discussion Papers 2636, C.E.P.R. Discussion Papers.
  25. 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.
  26. 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.
  27. Nicholas Bloom & John Van Reenen, 2002. "Patents, Real Options and Firm Performance," Economic Journal, Royal Economic Society, vol. 112(478), pages C97-C116, March.
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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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