Competition and investment — A unified approach

Armin Schmutzler

International Journal of Industrial Organization, 2013, vol. 31, issue 5, 477-487

Abstract: Using a simple but general two-stage framework, this paper identifies the circumstances under which increasing competition leads to more cost-reducing investments. The framework can, for instance, capture increasing substitutability for different types of oligopoly models or changes from Cournot to Bertrand competition. The paper identifies four transmission mechanisms by which competition affects investment. For a firm with lower initial marginal costs (higher efficiency), a positive effect of competition on investment is more likely. Positive spillovers support a negative effect of competition on investment. The relation between competition and investment is not affected in an unambiguous way by the level of pre-existing competition.

Keywords: Competition; Investment; Cost reduction; Innovation; R&D (search for similar items in EconPapers)
JEL-codes: L13 L20 L22 O31 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (46)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:31:y:2013:i:5:p:477-487

DOI: 10.1016/j.ijindorg.2013.07.010

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