Competition as a Discovery Procedure: Schumpeter Meets Hayek in a Model of Innovation

Pedro Bento

No 13-10, Working Papers from Department of Economics, West Virginia University

Abstract: I incorporate an insight of Friedrich Hayek - that competition allows a thousand flowers to bloom, and discovers the best among them - into a model of Schumpeterian innovation. Firms face uncertainty about the optimal direction of innovation, so more innovations implies a higher expected value of the `best' innovation. The model accounts for two seemingly contradictory relationships reported in recent empirical studies - a positive relationship between competition and industry-level productivity growth, and an inverted-U relationship between competition and firm-level innovation. Notwithstanding the positive relationship between competition and growth, I find antitrust policy reduces industry-level growth.

Keywords: competition; innovation; productivity growth; inverted-u; antitrust; regulation (search for similar items in EconPapers)
JEL-codes: L41 L51 O31 O40 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2013-08
New Economics Papers: this item is included in nep-bec, nep-com, nep-cse, nep-gro, nep-ind, nep-ino, nep-knm and nep-sbm
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Citations: View citations in EconPapers (8)

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Journal Article: Competition as a Discovery Procedure: Schumpeter Meets Hayek in a Model of Innovation (2014)
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