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Competition, R&D and the cost of innovation

Author

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  • Philippe Askenazy

    (PSE - Paris School of Economics, IZA - Institute for the Study of Labor - IZA, Centre de recherche de la Banque de France - Banque de France, PJSE - Paris-Jourdan Sciences Economiques - ENS Paris - École normale supérieure - Paris - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)

  • Christophe Cahn

    (PSE - Paris School of Economics, PJSE - Paris-Jourdan Sciences Economiques - ENS Paris - École normale supérieure - Paris - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, DAMEP - Banque de France - Direction de l'analyse macroéconomique et de la prévision - Banque de France)

  • Delphine Irac

    (Centre de recherche de la Banque de France - Banque de France)

Abstract

This paper proposes a model in the spirit of Aghion and al. (2005) that relates the magnitude of the impact of competition on R&D to the cost of 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.

Suggested Citation

  • Philippe Askenazy & Christophe Cahn & Delphine Irac, 2008. "Competition, R&D and the cost of innovation," PSE Working Papers halshs-00586690, HAL.
    • Handle: RePEc:hal:psewpa:halshs-00586690
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00586690
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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. 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.
    2. 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.
    3. 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.
    4. Liliana Varela, 2015. "Reallocation, Competition and Productivity: Evidence from a Financial Liberalization Episode," Working Papers 2015-042-23, Department of Economics, University of Houston.
    5. 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.
    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. 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.

    More about this item

    Keywords

    concurrence; 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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