Competition, product and process innovation: an empirical analysis

Carlos Santos

Working Papers. Serie AD from Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie)

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.

Keywords: competition; innovation; R&D; product innovation; process innovation (search for similar items in EconPapers)
JEL-codes: L11 L60 O30 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2010-07
New Economics Papers: this item is included in nep-bec, nep-com, nep-cse, nep-ind, nep-ino, nep-ipr, nep-pr~, nep-knm, nep-mic, nep-reg and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:ivi:wpasad:2010-26

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