The Causal Effects of Competition on Innovation: Experimental Evidence

Philippe Aghion, Stefan Bechtold, Lea Cassar () and Holger Herz

The Journal of Law, Economics, and Organization, 2018, vol. 34, issue 2, 162-195

Abstract: We design two laboratory experiments to analyze the causal effects of competition on step-by-step innovation. Innovations result from costly R&D investments and move technology up one step. Competition is inversely measured by the ex post rents for firms that operate at the same technological level, that is, for neck-and-neck firms. First, we find that increased competition leads to a significant increase in R&D investments by neck-and-neck firms. Second, increased competition decreases R&D investments by firms that are lagging behind, in particular if the time horizon is short. Third, we find that increased competition affects industry composition by reducing the fraction of sectors where firms are neck-and-neck. All these results are consistent with the predictions of step-by-step innovation models.

JEL-codes: C91 L10 O31 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (36)

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Working Paper: The Causal Effects of Competition on Innovation: Experimental Evidence (2018)
Working Paper: The Causal Effects of Competition on Innovation: Experimental Evidence (2018)
Working Paper: The Causal Effects of Competition on Innovation: Experimental Evidence (2014)
Working Paper: The Causal Effects of Competition on Innovation: Experimental Evidence (2014)
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