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Discretely Innovating: The Effect of Barriers to Entry on Innovation and Growth

Author

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  • Steven Bond-Smith

    (Bankwest Curtin Economic Centre, Curtin University)

Abstract

This article considers the effect of a discrete entry barrier (i.e. an integer number of firms) in an endogenous growth model to draw conclusions about the relationship between contestability, innovation and growth. Sector-specific workers provide a tool for calibrating numerical examples. Sectors with lower entrepreneurial contestability have lower innovation and sectors characterized by Cournot oligopoly have lower innovation than sectors characterized by Bertrand. Wage inequality varies depending on the extent that the entry barrier is binding upon a marginal entrant. The model offers policy implications to support entrepreneurial entry, particularly in relatively small or isolated regional economies.

Suggested Citation

  • Steven Bond-Smith, 2018. "Discretely Innovating: The Effect of Barriers to Entry on Innovation and Growth," Bankwest Curtin Economics Centre Working Paper series WP1804, Bankwest Curtin Economics Centre (BCEC), Curtin Business School.
    • Handle: RePEc:ozl:bcecwp:wp1804
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    File URL: https://bcec.edu.au/publications/4464-2/
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    More about this item

    Keywords

    innovation; contestability; Cournot; Bertrand; competition; endogenous growth;
    All these keywords.

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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