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

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  • Philippe Askenazy

    (PSE - Paris-Jourdan Sciences Economiques - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics, 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," PSE - Labex "OSE-Ouvrir la Science Economique" hal-00812892, HAL.
  • Handle: RePEc:hal:pseose:hal-00812892
    DOI: 10.1093/oep/gps071
    Note: View the original document on HAL open archive server: https://hal-pjse.archives-ouvertes.fr/hal-00812892
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    Cited by:

    1. John S. Heywood & Uwe Jirjahn & Annika Pfister, 2017. "Product Market Competition and Employer Provided Training in Germany," Research Papers in Economics 2017-07, University of Trier, Department of Economics.
    2. Liliana Varela, 2018. "Reallocation, Competition, and Productivity: Evidence from a Financial Liberalization Episode," Review of Economic Studies, Oxford University Press, vol. 85(2), pages 1279-1313.
    3. 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.
    4. repec:oup:oxecpp:v:69:y:2017:i:4:p:1032-1053. is not listed on IDEAS

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