Friday, October 17, 2014
Competition as a Discovery Procedure: Schumpeter Meets Hayek in a Model of Innovation
Pedro Bento (West Virginia University, College of Business and Economics) analyzes Competition as a Discovery Procedure: Schumpeter Meets Hayek in a Model of Innovation.
ABSTRACT: I incorporate an insight of Friedrich Hayek - that competition allows a thousand flowers to bloom, and discovers the best among them - into a model of Schumpeterian innovation. Firms face uncertainty about the optimal direction of innovation, so more innovations implies a higher expected value of the `best' innovation. The model accounts for two seemingly contradictory relationships reported in recent empirical studies - a positive relationship between competition and industry-level productivity growth, and an inverted-U relationship between competition and firm-level innovation. Notwithstanding the positive relationship between competition and growth, I find antitrust policy reduces industry-level growth.
https://lawprofessors.typepad.com/antitrustprof_blog/2014/10/competition-as-a-discovery-procedure-schumpeter-meets-hayek-in-a-model-of-innovation-.html