« Nondiscriminatory Pricing: Is Standard Setting Different? | Main | Dukes v Wal-Mart Stores: En Banc Ninth Circuit Lowers the Bar for Class Certification and Creates Circuit Splits in Approving Largest Class Action Ever Certified »
August 23, 2010
Competition, product and process innovation: an empirical analysis
Posted by D. Daniel Sokol
Carlos D. Santos (Dpto. Fundamentos del Análisis Económico) explains Competition, product and process innovation: an empirical analysis.
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.
August 23, 2010 | Permalink
TrackBack URL for this entry:
Listed below are links to weblogs that reference Competition, product and process innovation: an empirical analysis: