Reconciling the Original Schumpeterian Model with the Observed Inverted-U Relationship between Competition and Innovation

Roberto Bonfatti, Luis A. Bryce Campodonico and Luigi Pisano

No 6948, CESifo Working Paper Series from CESifo

Abstract: Empirical studies have uncovered an inverted-U relationship between product-market competition and innovation. This is inconsistent with the original Schumpeterian Model, where greater competition reduces the profitability of innovation. We show that the model can predict the inverted-U if the innovators’ talent is heterogenous, and privately observable. With competition low and profitability high, talented innovators are credit constrained, since others are eager to mimic them. As competition increases, the mimickers become less eager, and talented innovators can invest more. This generates the increasing part of the relationship. With competition high, talented innovators are unconstrained, and the relationship is decreasing.

Keywords: innovation; competition; Schumpeterian Model of Growth; asymmetric information (search for similar items in EconPapers)
JEL-codes: E60 G38 O38 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-com, nep-ino and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp6948.pdf (application/pdf)

Related works:
Working Paper: Reconciling the original Schumpeterian Model with the observed inverted-U relationship between competition and innovation (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_6948

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().