The relation between competition and innovation -- Why is it such a mess?
Using a general two-stage framework, this paper gives sufficient conditions for increasing competition to have negative or positive effects on R&D-investment, respectively. Both possibilities arise in plausible situations, even if one uses relatively narrow definitions of increasing competition. The paper also shows that competition is more likely to increase the investments of leaders than those of laggards. When R&D-spillovers are strong, competition is less likely to increase investments. The paper also identifies conditions under which low initial levels of competition make a positive effects of competition on investment more likely. Extending the basic framework, the paper shows that separation of ownership and control, endogenous entry and cumulative investments make positive effects of competition on investment more likely. Imperfect upstream competition weakens the effects of competition on investment.
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References listed on IDEAS
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- Michael Raith, 2003. "Competition, Risk, and Managerial Incentives," American Economic Review, American Economic Association, vol. 93(4), pages 1425-1436, September.
- Athey, Susan & Schmutzler, Armin, 2001. "Investment and Market Dominance," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 1-26, Spring.
- Halbheer, Daniel & Fehr, Ernst & Goette, Lorenz & Schmutzler, Armin, 2009.
"Self-reinforcing market dominance,"
Games and Economic Behavior,
Elsevier, vol. 67(2), pages 481-502, November.
- Daniel Halbheer & Ernst Fehr & Lorenz Goette & Armin Schmutzler, 2007. "Self-Reinforcing Market Dominance," SOI - Working Papers 0711, Socioeconomic Institute - University of Zurich.
- Daniel Halbheer & Ernst Fehr & Lorenz Goette & Armin Schmutzler, . "Self-Reinforcing Market Dominance," Working Papers 0094, University of Zurich, Institute for Strategy and Business Economics (ISU).
- Boone, Jan, 2000.
CEPR Discussion Papers
2636, C.E.P.R. Discussion Papers.
- repec:cup:cbooks:9780521016919 is not listed on IDEAS
- Harris, Christopher & Howitt, Peter & Vickers, John & Aghion, Philippe, 2001. "Competition, Imitation and Growth with Step-by-Step Innovation," Scholarly Articles 12375013, Harvard University Department of Economics.
- Sacco, Dario & Schmutzler, Armin, 2011. "Is there a U-shaped relation between competition and investment?," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 65-73, January.
- Buehler Stefan & Schmutzler Armin, 2005.
"Asymmetric Vertical Integration,"
The B.E. Journal of Theoretical Economics,
De Gruyter, vol. 5(1), pages 1-27, January.
- Yongmin Chen & Marius Schwartz, 2013.
"Product Innovation Incentives: Monopoly vs. Competition,"
Journal of Economics & Management Strategy,
Wiley Blackwell, vol. 22(3), pages 513-528, 09.
- Yongmin Chen and Marius Schwartz, 2009. "Product Innovation Incentives: Monopoly vs. Competition," Working Papers gueconwpa~09-09-02, Georgetown University, Department of Economics.
- Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-77, November.
- repec:cup:cbooks:9780521816632 is not listed on IDEAS
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