IDEAS home Printed from https://ideas.repec.org/a/eee/indorg/v31y2013i5p477-487.html
   My bibliography  Save this article

Competition and investment — A unified approach

Author

Listed:
  • Schmutzler, Armin

Abstract

Using a simple but general two-stage framework, this paper identifies the circumstances under which increasing competition leads to more cost-reducing investments. The framework can, for instance, capture increasing substitutability for different types of oligopoly models or changes from Cournot to Bertrand competition. The paper identifies four transmission mechanisms by which competition affects investment. For a firm with lower initial marginal costs (higher efficiency), a positive effect of competition on investment is more likely. Positive spillovers support a negative effect of competition on investment. The relation between competition and investment is not affected in an unambiguous way by the level of pre-existing competition.

Suggested Citation

  • Schmutzler, Armin, 2013. "Competition and investment — A unified approach," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 477-487.
  • Handle: RePEc:eee:indorg:v:31:y:2013:i:5:p:477-487
    DOI: 10.1016/j.ijindorg.2013.07.010
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0167718713000842
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Yongmin Chen & Marius Schwartz, 2013. "Product Innovation Incentives: Monopoly vs. Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(3), pages 513-528, September.
    2. Leahy, Dermot & Neary, J Peter, 1997. "Public Policy towards R&D in Oligopolistic Industries," American Economic Review, American Economic Association, vol. 87(4), pages 642-662, September.
    3. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521016919, Fall.
    4. Bester, Helmut & Petrakis, Emmanuel, 1993. "The incentives for cost reduction in a differentiated industry," International Journal of Industrial Organization, Elsevier, vol. 11(4), pages 519-534.
    5. Jan Boone, 2000. "Competitive Pressure: The Effects on Investments in Product and Process Innovation," RAND Journal of Economics, The RAND Corporation, vol. 31(3), pages 549-569, Autumn.
    6. Bagwell, Kyle & Staiger, Robert W., 1994. "The sensitivity of strategic and corrective R&D policy in oligopolistic industries," Journal of International Economics, Elsevier, vol. 36(1-2), pages 133-150, February.
    7. Delbono, Flavio & Denicolo, Vincenzo, 1990. "R & D investment in a symmetric and homogeneous oligopol : Bertrand vs Cournot," International Journal of Industrial Organization, Elsevier, vol. 8(2), pages 297-313, June.
    8. Ilya Segal & Michael D. Whinston, 2007. "Antitrust in Innovative Industries," American Economic Review, American Economic Association, vol. 97(5), pages 1703-1730, December.
    9. Benjamin E. Hermalin, 1992. "The Effects of Competition on Executive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 23(3), pages 350-365, Autumn.
    10. Schmidt, Klaus M., 1996. "Managerial Incentives and Product Market Competition," CEPR Discussion Papers 1382, C.E.P.R. Discussion Papers.
    11. Greenstein, Shane & Ramey, Garey, 1998. "Market structure, innovation and vertical product differentiation," International Journal of Industrial Organization, Elsevier, vol. 16(3), pages 285-311, May.
    12. Michael Raith, 2003. "Competition, Risk, and Managerial Incentives," American Economic Review, American Economic Association, vol. 93(4), pages 1425-1436, September.
    13. Philippe Aghion & Christopher Harris & Peter Howitt & John Vickers, 2001. "Competition, Imitation and Growth with Step-by-Step Innovation," Review of Economic Studies, Oxford University Press, vol. 68(3), pages 467-492.
    14. Shapiro, Carl, 1989. "Theories of oligopoly behavior," Handbook of Industrial Organization,in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 6, pages 329-414 Elsevier.
    15. Schmutzler, Armin, 2010. "Is Competition Good for Innovation? A Simple Approach to an Unresolved Question," Foundations and Trends(R) in Microeconomics, now publishers, vol. 5(6), pages 355-428, August.
    16. Tom Lee & Louis L. Wilde, 1980. "Market Structure and Innovation: A Reformulation," The Quarterly Journal of Economics, Oxford University Press, vol. 94(2), pages 429-436.
    17. Qiu, Larry D., 1997. "On the Dynamic Efficiency of Bertrand and Cournot Equilibria," Journal of Economic Theory, Elsevier, vol. 75(1), pages 213-229, July.
    18. Glenn C. Loury, 1979. "Market Structure and Innovation," The Quarterly Journal of Economics, Oxford University Press, vol. 93(3), pages 395-410.
    19. 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.
    20. 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.
    21. Sacco, Dario & Schmutzler, Armin, 2011. "Is there a U-shaped relation between competition and investment?," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 65-73, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Christos Genakos & Tommaso Valletti & Frank Verboven, 2017. "Evaluating Market Consolidation in Mobile Communications," CEP Discussion Papers dp1486, Centre for Economic Performance, LSE.
    2. Aghion, Philippe & Bechtold, Stefan & Cassar, Lea & Herz, Holger, 2014. "The Causal Effects of Competition on Innovation: Experimental Evidence," Scholarly Articles 27738688, Harvard University Department of Economics.
    3. Mandy, David M. & Mayo, John W. & Sappington, David E.M., 2016. "Targeting efforts to raise rivals' costs: Moving from “Whether” to “Whom”," International Journal of Industrial Organization, Elsevier, vol. 46(C), pages 1-15.
    4. Georges Vivien Houngbonon & François Jeanjean, 2016. "What Level of Competition Intensity Maximises Investment in the Wireless Industry? ," Post-Print hal-01653797, HAL.
    5. Motta, Massimo & Tarantino, Emanuele, 2017. "The effect of horizontal mergers, when firms compete in prices and investments," Working Papers 17-01, University of Mannheim, Department of Economics.
    6. Gersbach, Hans & Schmutzler, Armin, 2014. "Does globalization create superstars? A simple theory of managerial wages," European Economic Review, Elsevier, vol. 71(C), pages 34-51.
    7. repec:kap:regeco:v:53:y:2018:i:2:d:10.1007_s11149-017-9347-5 is not listed on IDEAS
    8. Stiebale, Joel, 2016. "Cross-border M&As and innovative activity of acquiring and target firms," Journal of International Economics, Elsevier, vol. 99(C), pages 1-15.
    9. Gerda Dewit & Dermot Leahy, 2016. "Strategic R&D Commitment and the Gains from Trade," Review of International Economics, Wiley Blackwell, vol. 24(5), pages 1129-1148, November.
    10. Stephane Ciriani & Marc Lebourges, 2016. "The role of market power in economic growth: an analysis of the differences between EU and US competition policy theory, practice and outcomes," European Journal of Government and Economics, Europa Grande, vol. 5(1), pages 5-28, June.
    11. Motta, Massimo & Tarantino, Emanuele, 2016. "The Effect of a Merger on Investments," CEPR Discussion Papers 11550, C.E.P.R. Discussion Papers.
    12. Jeanjean, François & Houngbonon, Georges Vivien, 2016. "Optimal Market Structure in the Mobile Industry," 27th European Regional ITS Conference, Cambridge (UK) 2016 148678, International Telecommunications Society (ITS).
    13. Jeanjean, François & Houngbonon, Georges Vivien, 2017. "Market structure and investment in the mobile industry," Information Economics and Policy, Elsevier, vol. 38(C), pages 12-22.
    14. repec:eee:indorg:v:52:y:2017:i:c:p:427-449 is not listed on IDEAS
    15. repec:kap:revind:v:50:y:2017:i:4:d:10.1007_s11151-016-9553-9 is not listed on IDEAS
    16. Jonathan B. Baker, 2016. "Exclusionary Conduct of Dominant Firms, R&D Competition, and Innovation," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 48(3), pages 269-287, May.

    More about this item

    Keywords

    Competition; Investment; Cost reduction; Innovation; R&D;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:indorg:v:31:y:2013:i:5:p:477-487. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/inca/505551 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.