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Competition, Market Selection and Growth

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  • Vincenzo Denicolò
  • Piercarlo Zanchettin

Abstract

We study the effect of the competitive selection process on the economy's rate of growth. In an extension of standard quality-ladder models of endogenous growth, we allow for the possibility that in each period several asymmetric firms (representing an endogenously determined number of past innovators) may be simultaneously active in an industry. Stronger competitive pressure then has conflicting effects on the incentive to innovate, lowering prices but also selecting the more efficient firms. We show that the market selection effect of competition always increases the incentive to innovate and find circumstances in which it can outweigh the traditional negative effect of lower prices. Copyright © The Author(s). Journal compilation © Royal Economic Society 2009.

Suggested Citation

  • Vincenzo Denicolò & Piercarlo Zanchettin, 2010. "Competition, Market Selection and Growth," Economic Journal, Royal Economic Society, vol. 120(545), pages 761-785, June.
  • Handle: RePEc:ecj:econjl:v:120:y:2010:i:545:p:761-785
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    7. Valérie Lechene & Ian Preston, 2005. "Household Nash equilibrium with voluntarily contributed public goods," IFS Working Papers W05/06, Institute for Fiscal Studies.
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    Cited by:

    1. Andreas Pollak, 2014. "Rising R&D Intensity And Economic Growth," Economic Inquiry, Western Economic Association International, vol. 52(4), pages 1427-1445, October.
    2. repec:eee:eecrev:v:98:y:2017:i:c:p:392-409 is not listed on IDEAS
    3. Philipp Weinscheink, 2010. "Entry and Incumbent Innovation," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2010_17, Max Planck Institute for Research on Collective Goods.
    4. Suzuki, Keishun, 2017. "Competition, Patent Protection, and Innovation in an Endogenous Market Structure," MPRA Paper 77133, University Library of Munich, Germany.
    5. Chu, Angus C. & Cozzi, Guido & Furukawa, Yuichi & Liao, Chih-Hsing, 2017. "Inflation and economic growth in a Schumpeterian model with endogenous entry of heterogeneous firms," European Economic Review, Elsevier, vol. 98(C), pages 392-409.
    6. Federico Etro, 2006. "Market Leaders and Industrial Policy," Working Papers 103, University of Milano-Bicocca, Department of Economics, revised Nov 2006.
    7. Giammario Impullitti, 2007. "International Technological Competition and Optimal R&D Subsidies in the US: 1973-1990," 2007 Meeting Papers 747, Society for Economic Dynamics.
    8. Piercarlo Zanchettin & Vincenzo Denicolò, 2009. "Leadership Cycles," Discussion Papers in Economics 09/25, Department of Economics, University of Leicester.

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