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Endogenous spillovers and incentives to innovate

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  • Hans Gersbach
  • Armin Schmutzler

Abstract

We present a new approach to endogenizing technological spillovers. Firms choose levels of a cost-reducing innovation from a continuum before they engage in competition for each other's R&D-employees. Successful bids for the competitor's employee then result in higher levels of cost reduction. Finally, firms enter product market competition. We apply the approach to the long-standing debate on the effects of the mode of competition on innovation incentives. We show that incentives to acquire spillovers are stronger and incentives to prevent spillovers are weaker under quantity competition than under price competition. As a result, for a wide range of parameters, price competition gives stronger innovation incentives than quantity competition. Copyright Springer-Verlag Berlin Heidelberg 2003

Suggested Citation

  • Hans Gersbach & Armin Schmutzler, 2003. "Endogenous spillovers and incentives to innovate," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 21(1), pages 59-79, January.
  • Handle: RePEc:spr:joecth:v:21:y:2003:i:1:p:59-79
    DOI: 10.1007/s00199-001-0245-8
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    Keywords

    Keywords and Phrases: Endogenous technological spillovers; Innovation incentives; Complete wage contracts; R&D auction; Product market competition.; JEL Classification Numbers: D43; J41; L13; O30.;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation

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