Green innovation downturn: the role of imperfect competition

René Aïd, Mohamed Bahlali and Anna Creti
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René Aïd: FiME Lab - Laboratoire de Finance des Marchés d'Energie - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CREST - EDF R&D - EDF R&D - EDF - EDF, LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique
Mohamed Bahlali: LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique
Anna Creti: EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique, LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique

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Abstract: We use strategic interactions to analyze the role of China's state-subsidized production expansion in the recent downturn in solar photovoltaics innovation. To that end, we develop a dynamic game model in which solar panel manufacturers compete in price and invest in cost-reducing research. The resulting Nash equilibrium displays an inverted U relationship between a manufacturer's market share and its research effort. In the case where a local firm is competing against a foreign state-subsidized one, we obtain analytical and numerical results that are consistent with three stylized facts: (i) the foreign manufacturer progressively expands to become the dominant player, (ii) competition and innovation bring marginal costs down to zero, and (iii) each manufacturer's research effort follows an increasing-then-decreasing curve. At a policy level, our model shows that national technology-push policies, such as R&D subsidies, can affect foreign innovation by changing the structure of global competition.

Keywords: Low-carbon technologies; Photovoltaics; Innovation; Imperfect competition (search for similar items in EconPapers)
Date: 2023
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Published in Energy Economics, 2023, 123, ⟨10.1016/j.eneco.2023.106754⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04317679

DOI: 10.1016/j.eneco.2023.106754

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