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Competition, R&D, and the Cost of Innovation

Author

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  • Askenazy, P.
  • Cahn, C.
  • Irac, D.

Abstract

This paper proposes a model in the spirit of Aghion et al. (2005) that encompasses the magnitude of the impact of competition on R&D according to the cost of the innovation. The effect of competition on R&D is an inverted U-shape. However, the shape is flatter and competition policy is therefore less relevant for innovation when innovations are relatively costly. Intuitively, if innovations are costly for a firm, competitive shocks have to be significant to alter its innovation decisions. Empirical investigations using a unique panel dataset from the Banque de France show that an inverted U-shaped relationship can be clearly evidenced for the largest firms, but the curve becomes flatter when the relative cost of R&D increases. For large costs, the relationship even vanishes. Consequently, in sectors in which innovations are costly, policy changes have to be on a very large scale for an impact to be expected; at the extreme end, in certain sectors, the curve is so at that competition policy is not an appropriate tool for boosting the research effort of firms.

Suggested Citation

  • Askenazy, P. & Cahn, C. & Irac, D., 2008. "Competition, R&D, and the Cost of Innovation," Working papers 197, Banque de France.
  • Handle: RePEc:bfr:banfra:197
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    References listed on IDEAS

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    1. Frederique Savignac, 2008. "Impact Of Financial Constraints On Innovation: What Can Be Learned From A Direct Measure?," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 17(6), pages 553-569.
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    Cited by:

    1. Heywood, John S. & Jirjahn, Uwe & Pfister, Annika, 2017. "Product Market Competition and Employer Provided Training in Germany," IZA Discussion Papers 11054, Institute for the Study of Labor (IZA).
    2. Renaud Bourlès & Gilbert Cette & Jimmy Lopez & Jacques Mairesse & Giuseppe Nicoletti, 2013. "Do Product Market Regulations In Upstream Sectors Curb Productivity Growth? Panel Data Evidence For OECD Countries," The Review of Economics and Statistics, MIT Press, vol. 95(5), pages 1750-1768, December.
    3. Michael Polder & Erik Veldhuizen, 2012. "Innovation and Competition in the Netherlands: Testing the Inverted-U for Industries and Firms," Journal of Industry, Competition and Trade, Springer, vol. 12(1), pages 67-91, March.
    4. 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.
    5. Patrik Gustavsson Tingvall & Patrik Karpaty, 2011. "Service-sector competition, innovation and R&D," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 20(1), pages 63-88.
    6. 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.
    7. Liliana Varela, 2015. "Reallocation, Competition and Productivity: Evidence from a Financial Liberalization Episode," Working Papers 2015-042-23, Department of Economics, University of Houston.

    More about this item

    Keywords

    Competition ; R&D ; Innovation.;

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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