Rationalizing Scherer?s prophecy of an inverted-U relationship between competition and innovation

Philippe Aghion

ECONOMIA E POLITICA INDUSTRIALE, 2014, vol. 2014/1, issue 1, 13-23

Abstract: In this paper we develop a simple Schumpeterian growth model to rationalize the inverted-U relationship between competition and innovation uncovered by Scherer (1967). This model in turn delivers a number of testable prediction. A first testable prediction is that the relationship between competition and innovation follows an inverted- U pattern and the average technological gap within a sector increases with competition. A second prediction is that more intense competition enhances innovation in "frontier" firms but may discourage it in "non-frontier" firms. A third prediction is that there is complementarity between patent protection and product market competition in fostering innovation. More generally, recent attempts at verifying Scherer?s conjectures have given rise to a whole new trend of endogenous growth models aimed at being confronted with micro evidence.

Keywords: Distruzione creatrice; competizione; innovazione; effetto di composizione; frontiera tecnologica; leader; ritardatario (search for similar items in EconPapers)
JEL-codes: O10 O11 O12 O30 O31 O33 O40 (search for similar items in EconPapers)
Date: 2014
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