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A Minimum of Rivalry: Evidence from Transition Economies on the Importance of Competition for Innovation and Growth

Author

Listed:
  • Carlin Wendy

    () (University College London)

  • Schaffer Mark

    () (Heriot-Watt University)

  • Seabright Paul

    () (IDEI, University of Toulouse-1)

Abstract

This paper examines the importance of competition in innovation and the growth of firms. We make use of the large-scale natural experiment of the shift from an economic system without competition to a market economy to shed light on the factors that influence innovation by firms and their subsequent growth, thereby alleviating problems due to non-random clustering of innovation opportunities in mature market economies. We find evidence that monopolies innovate less and have weaker growth than firms facing a minimum of rivalry. The presence of competitors has both a direct effect on performance, and an indirect effect, through improving the efficiency with which the rents from market power in product markets are utilised to undertake innovation. There is also some less clear-cut evidence of an 'inverted-U', namely that the presence of a few rivals is more conducive to performance than the presence of many competitors.

Suggested Citation

  • Carlin Wendy & Schaffer Mark & Seabright Paul, 2004. "A Minimum of Rivalry: Evidence from Transition Economies on the Importance of Competition for Innovation and Growth," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(1), pages 1-45, September.
  • Handle: RePEc:bpj:bejeap:v:contributions.3:y:2004:i:1:n:17
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • P00 - Economic Systems - - General - - - General
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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