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Competition, R&D, and the Cost of Innovation

Philippe Askenazy (), Christophe Cahn () and Delphine Irac ()

Working papers from Banque de France

Abstract: This paper proposes a model in the spirit of Aghion et al. (2005) that encompasses the magnitude of the impact of competition on R&D according to the cost of the innovation. The effect of competition on R&D is an inverted U-shape. However, the shape is flatter and competition policy is therefore less relevant for innovation when innovations are relatively costly. Intuitively, if innovations are costly for a firm, competitive shocks have to be significant to alter its innovation decisions. Empirical investigations using a unique panel dataset from the Banque de France show that an inverted U-shaped relationship can be clearly evidenced for the largest firms, but the curve becomes flatter when the relative cost of R&D increases. For large costs, the relationship even vanishes. Consequently, in sectors in which innovations are costly, policy changes have to be on a very large scale for an impact to be expected; at the extreme end, in certain sectors, the curve is so at that competition policy is not an appropriate tool for boosting the research effort of firms.

Keywords: Competition; R&D; Innovation. (search for similar items in EconPapers)
JEL-codes: L51 O31 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2008
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Citations: View citations in EconPapers (5) Track citations by RSS feed

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Working Paper: Competition, R&D and the cost of innovation (2008) Downloads
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