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Endogenous Spillovers and Incentives to Innovate

Author

Listed:
  • Hans Gersbach

    () (CER-ETH - Center of Economic Research, ETH Zurich)

  • Armin Schmutzler

    () (Socioeconomic Institute, University of Zurich)

Abstract

We present a new approach to endogenizing technological spillovers. Firms choose continuous levels of a cost-reducing innovation before they engage in competition for each other's R&D-employees. Successful bids for the competitor's employee then result in higher levels of cost reduction. Finally, firms enter product market competition. We apply the approach to the long-standing debate on the effects of the mode of competition on innovation incentives. We show that incentives to acquire spillovers are stronger and incentives to prevent spillovers are weaker under quantity competition than under price competition. As a result, for a wide range of parameters, price competition gives stronger innovation incentives than quantity competition.

Suggested Citation

  • Hans Gersbach & Armin Schmutzler, 1999. "Endogenous Spillovers and Incentives to Innovate," SOI - Working Papers 9902, Socioeconomic Institute - University of Zurich.
  • Handle: RePEc:soz:wpaper:9902
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    Keywords

    spillovers; innovation incentives; product market competition;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation

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