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Competition, R&D, and the cost of innovation: evidence for France

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  • Philippe Askenazy
  • Christophe Cahn
  • Delphine Irac

Abstract

Aghion and coauthors put forward a model which exhibits an inverted-U-shape relationship between innovation and competition: competition may increase the innovation profit margin for firms close to the technological frontier (since they escape competition) but strong competition could also reduce incentives to innovate for laggards (disincentive effect). However their analysis does not take firm size into account. This paper explores this link. Our model stresses that size should matter: if innovations are large-scale and costly in the firm's sector or relatively to the size of the firm, competitive shocks have to be large enough to change innovation choices. Using a unique panel of French firms we show an inverted-U-shape relationship that becomes flatter when the relative cost of R&D increases until it vanish altogether for small firms. Copyright 2013 Oxford University Press 2013 All rights reserved, Oxford University Press.

Suggested Citation

  • Philippe Askenazy & Christophe Cahn & Delphine Irac, 2013. "Competition, R&D, and the cost of innovation: evidence for France," Oxford Economic Papers, Oxford University Press, vol. 65(2), pages 293-311, April.
    • Handle: RePEc:oup:oxecpp:v:65:y:2013:i:2:p:293-311
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    File URL: http://hdl.handle.net/10.1093/oep/gps071
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    Cited by:

    1. John S. Heywood & Uwe Jirjahn & Annika Pfister, 2017. "Product Market Competition and Employer Provided Training in Germany," Research Papers in Economics 2017-07, University of Trier, Department of Economics.
    2. Liliana Varela, 2018. "Reallocation, Competition, and Productivity: Evidence from a Financial Liberalization Episode," Review of Economic Studies, Oxford University Press, vol. 85(2), pages 1279-1313.
    3. Mulkay, Benoît, 2019. "How does competition affect innovation behaviour in french firms?," Structural Change and Economic Dynamics, Elsevier, vol. 51(C), pages 237-251.
    4. Bettina Becker, 2013. "The Determinants of R&D Investment: A Survey of the Empirical Research," Discussion Paper Series 2013_09, Department of Economics, Loughborough University, revised Sep 2013.
    5. Ciriani, Stephane & Jeanjean, Francois, 2019. "Competition, technological change and productivity gains: the contribution of information technologies," 30th European Regional ITS Conference, Helsinki 2019 205175, International Telecommunications Society (ITS).
    6. Pilar BeneitoBy & María Engracia Rochina-Barrachina & Amparo Sanchis, 2017. "Competition and innovation with selective exit: an inverted-U shape relationship?," Oxford Economic Papers, Oxford University Press, vol. 69(4), pages 1032-1053.
    7. Haithem Ben Hassine & Fabienne Boudier & Claude Mathieu, 2014. "The two ways of FDI R&D spillovers : Evidence from the French manufacturing industry," Erudite Working Paper 2014-03, Erudite.

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