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Competition, R&D, and the cost of innovation: evidence for France

Author

Listed:
  • Philippe Askenazy

    (PSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, Banque de france - Banque de France)

  • Christophe Cahn

    (Banque de france - Banque de France)

  • Delphine Irac

    (Banque de france - Banque de France)

Abstract

Aghion and coauthors put forward a model which exhibits an inverted-U-shape relationship between innovation and competition: competition may increase the innovation profit margin for firms close to the technological frontier (since they escape competition) but strong competition could also reduce incentives to innovate for laggards (disincentive effect). However their analysis does not take firm size into account. This paper explores this link. Our model stresses that size should matter: if innovations are large-scale and costly in the firm's sector or relatively to the size of the firm, competitive shocks have to be large enough to change innovation choices. Using a unique panel of French firms we show an inverted-U-shape relationship that becomes flatter when the relative cost of R&D increases until it vanish altogether for small firms.

Suggested Citation

  • Philippe Askenazy & Christophe Cahn & Delphine Irac, 2013. "Competition, R&D, and the cost of innovation: evidence for France," Post-Print hal-00812892, HAL.
    • Handle: RePEc:hal:journl:hal-00812892
    DOI: 10.1093/oep/gps071
    as

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