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Is there really an inverted U-shaped relation between competition and R&D?

  • Patrik Gustavsson Tingvall
  • Andreas Poldahl

We test whether predictions of the Aghion et al. (Aghion, P., Bloom, N., Blundell, R., Griffith, R. and Howitt, P. (2004) Competition and Innovation: An Inverted U Relationship. NBER Working Paper series, No. 9269.) model are supported by firm-level data. In particular, we analyze if there is an inverted U-shaped relation between competition and R&D. Results show that the inverted U-shaped relation is supported by the Herfindahl index but not by the price cost margin. Using the Herfindahl index, results suggest that breaking up monopolies increases R&D, whereas further increases in competition most likely lead to reduced R&D. Comparing different estimators, we find that time series-based estimators typically result in less clear-cut results, probably driven by a lack of time series variation in measures of competition.

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Article provided by Taylor & Francis Journals in its journal Economics of Innovation and New Technology.

Volume (Year): 15 (2006)
Issue (Month): 3 ()
Pages: 101-118

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Handle: RePEc:taf:ecinnt:v:15:y:2006:i:3:p:101-118
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