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Competition through Technical Progress

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  • Jeanjean, François

Abstract

The relationship between technical progress and price competition is a controversial issue in economics. This paper highlights the fact that investment in technical progress is an authentic type of competition which benefits the consumers rather than the industry. This type of competition exists when the potential for technical progress, which can be incorporated by firms through investment, is high enough. Competition is, in fact, made up of two components: A static one which is known as price or quantity competition and a dynamic one, the Technical Progress competition which also contribute to reduce prices and increase quantities for consumers. Consequently, the economic factors that increase a firm's margin do not have to be viewed as the consumers' enemy, but rather as an ally, under specific conditions, because they allow higher investments in new technology by which firms increase their capacities and attract higher demand from consumers. This paper also underlines that, for a mature market, the maximum Consumer Surplus as well as Social Welfare are attained by a constant level of combined competition which is only dependent on the size of the market and the number of firms. The level of combined competition can be defined as the product of the static and the dynamic level of competition. As a consequence, the higher the potential of technical progress is, the lower the level of static competition must be in order to reach the maximum level of Consumer Surplus and Social Welfare. --

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Bibliographic Info

Paper provided by International Telecommunications Society (ITS) in its series 21st European Regional ITS Conference, Copenhagen 2010: Telecommunications at new crossroads - Changing value configurations, user roles, and regulation with number 18.

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Date of creation: 2010
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Handle: RePEc:zbw:itse10:18

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Web page: http://www.itseurope.org/

Related research

Keywords: Investment; Competition; Technical Progress; Dynamic Competition;

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References

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  1. Howitt, Peter & Griffith, Rachel & Aghion, Philippe & Blundell, Richard & Bloom, Nick, 2005. "Competition and Innovation: An Inverted-U Relationship," Scholarly Articles 4481507, Harvard University Department of Economics.
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Cited by:
  1. Orange, François Jeanjean, 2013. "Static and dynamic causes of the decline in the price of mobile telecommunication services," 24th European Regional ITS Conference, Florence 2013 88490, International Telecommunications Society (ITS).
  2. Jeanjean, François & Liang, Julienne, 2011. "Role of access charges in the migration from copper to FTTH," 8th Asia-Pacific Regional ITS Conference, Taipei 2011: Convergence in the Digital Age 52335, International Telecommunications Society (ITS).

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