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Competition and Innovation: An Experimental Investigation

  • Donja Darai

    ()

    (Socioeconomic Institute, University of Zurich)

  • Dario Sacco

    ()

  • Armin Schmutzler

    ()

    (Socioeconomic Institute, University of Zurich)

The paper analyzes the effects of more intense competition on firms'incentives to invest in process innovations. We carry out experiments for two-stage games, where R&D investment choices are followed by product market competition. As predicted by theory, an increase in the number of firms from two to four reduces investments. However, a positive effect is observed for a switch from Cournot to Bertrand, even though theory predicts a negative effect in the four-player case. This result reflects overinvestment in the Bertrand case. The results arise both in treatments in which both stages are implemented and in treatments in which only one stage is implemented.

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File URL: http://www.soi.uzh.ch/research/wp/2006/wp0608.pdf
File Function: revised version, 2009
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Paper provided by Socioeconomic Institute - University of Zurich in its series SOI - Working Papers with number 0608.

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Length: 33 pages
Date of creation: Jun 2009
Date of revision: Apr 2007
Publication status: forthcoming in Experimental Economics
Handle: RePEc:soz:wpaper:0608
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  40. Hans Gersbach & Armin Schmutzler, 2006. "A Product-Market Theory of Industry-Specific Training," SOI - Working Papers 0610, Socioeconomic Institute - University of Zurich.
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