Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Thursday, August 8, 2019

Monopolistic competition for the market with heterogeneous firms and Schumpeterian growth

By: Federico Etro
Abstract: I study monopolistic competition in patent races where firms are heterogeneous in R&D costs. Only the most efficient firms invest, and they invest more when the value of innovation is higher, while the endogenous set of active firms depends on the profitability of innovation. In particular, selection effect (increasing R&D productivity) emerge after a reduction of the entry cost or after an increase (a reduction) of the value of innovation if the elasticity of the probability of innovation is increasing (decreasing) in investment. In Schumpeterian models selection effects foster endogenous growth.

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