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Does competition spur innovation? The case of yardstick competition

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  • Lefouili, Yassine

Abstract

This paper investigates the effect of yardstick competition on firms’ incentives to invest in cost-reducing innovations. We show that an increase in the intensity of yardstick competition, for which we provide a natural measure, increases the incentives to innovate.

Suggested Citation

  • Lefouili, Yassine, 2015. "Does competition spur innovation? The case of yardstick competition," Economics Letters, Elsevier, vol. 137(C), pages 135-139.
    • Handle: RePEc:eee:ecolet:v:137:y:2015:i:c:p:135-139
    DOI: 10.1016/j.econlet.2015.10.033
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    References listed on IDEAS

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    1. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, December.
    2. Andrei Shleifer, 1985. "A Theory of Yardstick Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(3), pages 319-327, Autumn.
    3. Dag Morten Dalen, 1998. "Yardstick Competition and Investment Incentives," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(1), pages 105-126, March.
    4. Tangeras, Thomas P., 2002. "Collusion-proof yardstick competition," Journal of Public Economics, Elsevier, vol. 83(2), pages 231-254, February.
    5. Gilbert Richard J, 2006. "Competition and Innovation," Journal of Industrial Organization Education, De Gruyter, vol. 1(1), pages 1-23, December.
    6. Raymond De Bondt & Jan Vandekerckhove, 2012. "Reflections on the Relation Between Competition and Innovation," Journal of Industry, Competition and Trade, Springer, vol. 12(1), pages 7-19, March.
    7. Jamasb, T. & Pollitt, M., 2000. "Benchmarking and regulation: international electricity experience," Utilities Policy, Elsevier, vol. 9(3), pages 107-130, September.
    8. Richard Gilbert, 2006. "Looking for Mr. Schumpeter: Where Are We in the Competition-Innovation Debate?," NBER Chapters, in: Innovation Policy and the Economy, Volume 6, pages 159-215, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Daragh O'Leary & Justin Doran & Bernadette Power, 2022. "Intensity of competition and firm innovative behavior," Economics and Business Letters, Oviedo University Press, vol. 11(2), pages 53-69.
    2. Nicos Savva & Tolga Tezcan & Özlem Yıldız, 2019. "Can Yardstick Competition Reduce Waiting Times?," Management Science, INFORMS, vol. 65(7), pages 3196-3215, July.
    3. Jong Myeong Lim & Ken Moon & Sergei Savin, 2024. "Searching for the Best Yardstick: Cost of Quality Improvements in the U.S. Hospital Industry," Management Science, INFORMS, vol. 70(6), pages 3769-3788, June.
    4. Hyo Kang, 2025. "Price-Fixing Cartels and Firm Innovation," Management Science, INFORMS, vol. 71(11), pages 9628-9649, November.
    5. Pratyush Bharati & Abhijit Chaudhury, 2019. "Assimilation of Big Data Innovation: Investigating the Roles of IT, Social Media, and Relational Capital," Information Systems Frontiers, Springer, vol. 21(6), pages 1357-1368, December.
    6. Nicos Savva & Laurens Debo & Robert A. Shumsky, 2023. "Hospital Reimbursement in the Presence of Cherry Picking and Upcoding," Management Science, INFORMS, vol. 69(11), pages 6777-6799, November.

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    Keywords

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    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L5 - Industrial Organization - - Regulation and Industrial Policy

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