INNOVATION AND MARKET CONCENTRATION WITH ASYMMETRIC FIRMS

Marc Escrihuela-Villar ()

Economics of Innovation and New Technology, 2008, vol. 17, issue 3, 195-207

Abstract: This paper considers a theoretical model of n asymmetric firms that reduce their initial unit costs by spending on R&D activities. In accordance with the Schumpeterian hypotheses, more efficient (bigger) firms spend more on R&D and this leads to a more concentrated market structure. This calls for an industrial policy. A double channel of intervention with measures directed towards production together with others towards innovation is considered. We show that a corrective tax to curtail strategic incentives to over-invest in R&D, together with a production subsidy, reduce market concentration. When the policy is firm specific, the government taxes the more efficient firms less, basically because the policy could be used as an instrument to divert production to the more efficient firms.

Keywords: R&D; Asymmetries; Market concentration; Optimal industrial policy (search for similar items in EconPapers)
Date: 2008
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DOI: 10.1080/10438590601002356

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