Competition and Innovation: an Inverted-U Relationship

Philippe Aghion, Nicholas Bloom, Richard Blundell (), Rachel Griffith and Peter Howitt

The Quarterly Journal of Economics, 2005, vol. 120, issue 2, 701-728

Abstract: This paper investigates the relationship between product market competition and innovation. We find strong evidence of an inverted-U relationship using panel data. We develop a model where competition discourages laggard firms from innovating but encourages neck-and-neck firms to innovate. Together with the effect of competition on the equilibrium industry structure, these generate an inverted-U. Two additional predictions of the model—that the average technological distance between leaders and followers increases with competition, and that the inverted-U is steeper when industries are more neck-and-neck—are both supported by the data.

Date: 2005
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Related works:
Working Paper: Competition and Innovation: An Inverted-U Relationship (2005)
Working Paper: Competition and innovation: an inverted U relationship (2002)
Working Paper: Competition and Innovation: An Inverted U Relationship (2002)
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