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Competition and Innovation: An Experimental Investigation

Author

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  • Dario Sacco

    () (Socioeconomic Institute, University of Zurich)

Abstract

The paper analyzes the effects of competitive intensity on firms' incentives to invest in process innovations through an experiment based on two-stage games, where R&D investment choices are followed by product market competition. An increase in the intensity of competition is modeled as an increase in the number of �rms or as a switch from Cournot to Bertrand. The theoretical prediction is that more intense competition is unfavorable to investments for both cases. In the experiment it turns out that the way of modeling the intensity of competition is essential. The theoretical prediction is confirmed for the number effects. On the other hand, the comparison of Cournot and Bertrand shows that more intense competition is bene�cial for investments.

Suggested Citation

  • Dario Sacco, 2007. "Competition and Innovation: An Experimental Investigation," SOI - Working Papers 0714, Socioeconomic Institute - University of Zurich.
  • Handle: RePEc:soz:wpaper:0714
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    File URL: http://www.econ.uzh.ch/static/wp_soi/wp0714.pdf
    File Function: First version, 2007
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    More about this item

    Keywords

    R&D investment; intensity of competition; experiment;

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • 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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