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The Invariance of Market Innovation to the Number of Firms

Raaj Sah () and Joseph Stiglitz

RAND Journal of Economics, 1987, vol. 18, issue 1, 98-108

Abstract: This article provides a set of conditions under which the R&D undertaken in a market economy is invariant to the number (or size distribution) of firms and the market's allocation is efficient (i.e., given the aggregate expenditure, the market chooses socially optimal projects). As in several patent race studies, we assume that a "winner-takes-all" competition determines firms' gains, but our model differs from earlier studies in that firms are not restricted to undertake only one research project. Our analysis shows that how one characterizes a firm's choices (and innovation technologies) has a strong influence on the conclusions one draws from economic analyses of R&D.

Date: 1987
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Working Paper: The Invariance of R&D to the Number of Firms in the Industry (1986) Downloads
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