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Competition and Innovation: An Experimental Investigation

  • Dario Sacco

    ()

    (Socioeconomic Institute, University of Zurich)

  • 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 based on 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.

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File URL: http://www.econ.uzh.ch/static/wp_soi/wp0807.pdf
File Function: first version, 2008
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Paper provided by Socioeconomic Institute - University of Zurich in its series SOI - Working Papers with number 0807.

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Length: 23 pages
Date of creation: May 2008
Date of revision:
Handle: RePEc:soz:wpaper:0807
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