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Growth, Competition and Welfare

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  • Theo Van De Klundert
  • Sjak Smulders

Abstract

The impact of competition on growth and welfare is analysed by developing a model in which the number of firms, profit margins and innovation rates are endogenous. Different regimes of oligopolistic competition are distinguished. The tougher the price competition, the lower the profit margins for a given rate of concentration. This reduces the number of firms and product variety in a free entry equilibrium. Consequently, tougher competition implies larger firm size and higher rates of innovation since new technologies can be applied in a larger market. Oligopolistic pricing leads to underinvestment in firm‐specific knowledge, even if inter‐firm knowledge spillovers are neglected.

Suggested Citation

  • Theo Van De Klundert & Sjak Smulders, 1997. "Growth, Competition and Welfare," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(1), pages 99-118, March.
  • Handle: RePEc:bla:scandj:v:99:y:1997:i:1:p:99-118
    DOI: 10.1111/1467-9442.00050
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