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Competition, product and process innovation: an empirical analysis

Author

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  • Carlos D. Santos

    (Dpto. Fundamentos del Análisis Económico)

Abstract

Competition has long been regarded as productivity enhancing. Understanding the mechanism by which competition affects innovation and productivity is therefore an important topic for economic policy. The main contribution of this paper is to disentangle the relationship between competition and two sides of innovation: product and process. I write down a model and discuss the conditions under which we can identify the causal mechanism. Overall I find that competition, measured by the number of competitors or market shares, has negative effects on product innovation and no effects on process innovation. The explanation is very simple. By shifting demand, competition directly changes the optimality condition for product but not for process innovation. Thus, competition has no direct effects on process innovations or, as a consequence, productivity.

Suggested Citation

  • Carlos D. Santos, 2010. "Competition, product and process innovation: an empirical analysis," Working Papers. Serie AD 2010-26, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    • Handle: RePEc:ivi:wpasad:2010-26
    as

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    File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2010-26.pdf
    File Function: Fisrt version / Primera version, 2010
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    References listed on IDEAS

    as
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    3. Andrés, Luis & Cuberes, David & Diouf, Mame & Serebrisky, Tomás, 0. "The diffusion of the Internet: A cross-country analysis," Telecommunications Policy, Elsevier, vol. 34(5-6), pages 323-340, June.
    4. Luis J. Hall, 2010. "Differentiated social interactions in the US schooling race gap," Working Papers. Serie AD 2010-17, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
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    6. José J. Sempere Monerris & Rafael Moner Colonques & Amparo Urbano Salvador, 2010. "Trade liberalization in vertically related markets," Working Papers. Serie AD 2010-09, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Michael Peneder & Martin Woerter, 2014. "Competition, R&D and innovation: testing the inverted-U in a simultaneous system," Journal of Evolutionary Economics, Springer, vol. 24(3), pages 653-687, July.
    2. Benavente, Jose Miguel & Zuniga, Pluvia, 2021. "The effectiveness of innovation policy and the moderating role of market competition: Evidence from Latin American firms," MERIT Working Papers 2021-025, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    3. MARSCHINSKI Robert & DE AMORES HERNANDEZ Antonio & AMOROSO Sara & BAUER Peter & CARDANI Roberta & CSEFALVAY Zoltan & GENTY Aurelien & GKOTSIS Petros & GREGORI Wildmer & GRASSANO Nicola & HERNANDEZ GUE, 2021. "EU competitiveness: recent trends, drivers, and links to economic policy: A Synthesis Report," JRC Research Reports JRC123232, Joint Research Centre.

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    More about this item

    Keywords

    competition; innovation; R&D; product innovation; process innovation;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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