Quarterly Journal of Economics Vol. 120 No. 2 2005
Competition and Innovation: An Inverted-U Relationship*
Abstract
This paper investigates the relationship between product market competition and innovation. We find strong evidence of an inverted-U relationship using panel data. We develop a model where competition discourages laggard firms from innovating but encourages neck-and-neck firms to innovate. Together with the effect of competition on the equilibrium industry structure, these generate an inverted-U. Two additional predictions of the model-that the average technological distance between leaders and followers increases with competition, and that the inverted-U is steeper when industries are more neck-and-neck-are both supported by the data.
- DOI
- 10.1162/0033553053970214
- Volume
- 120
- Issue
- 2
- Pages
- 701-728
- Language
- en
- Sources
- crossref openalex