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Strategic R&D investment, competitive toughness and growth

  • Claude d'Aspremont
  • Rodolphe Dos Santos Ferreira
  • Louis-André Gérard-Varet

We develop an overlapping generations model, where firms (as consumers) have a two-period life, investing in R&D during the first period and competing in the product market in the second period. The number of firms is endogenously determined and the set of successful firms by a Bernoullian random process. We show the possibility of an inverted-U relationship between innovation and product market competition for an individual industry, based on the possibility for non-successful firms to remain productive. When the relative cost advantage of successful firms is large (large innovation step or small spillovers) this possibility results from the probabilistic nature of the model.

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Article provided by The International Society for Economic Theory in its journal International Journal of Economic Theory.

Volume (Year): 6 (2010)
Issue (Month): 3 ()
Pages: 273-295

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Handle: RePEc:bla:ijethy:v:6:y:2010:i:3:p:273-295
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  1. Philippe Aghion & Nicholas Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2002. "Competition and innovation: an inverted U relationship," IFS Working Papers W02/04, Institute for Fiscal Studies.
  2. 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.
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  6. Claude d'Aspremont & Rodolphe Dos Santos Ferreira & Louis-André Gérard-Varet, 2007. "Competition For Market Share Or For Market Size: Oligopolistic Equilibria With Varying Competitive Toughness," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(3), pages 761-784, 08.
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  14. d ASPREMONT , Claude & MOTTA , Massimo, 1994. "Tougher Price-Competition or Lower Concentration : A Trade-Off for Antitrust Authorities ?," CORE Discussion Papers 1994015, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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