Competitive Pressure: The Effects on Investments in Product and Process Innovation
I analyze the effects of competitive pressure on a firm's incentives to invest in product and process innovations. I present a framework incorporating the selection and adaptation effects of product market competition on efficiency and the Schumpeterian argument for monopoly power. The effects of competition on a firm's innovations depend on whether a firm is complacent, eager, struggling, or faint, which is determined by the firm's efficiency level relative to that of its opponents. Finally, the following tradeoff is pointed out: a rise in competitive pressure cannot raise both product and process innovations at the industry level.
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Volume (Year): 31 (2000)
Issue (Month): 3 (Autumn)
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