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Competition and Innovation: An Inverted-U Relationship (2002)
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@MISC{Aghion02competitionand,
author = {Philippe Aghion and Nick Bloom and Richard Blundell and Rachel Griffith and Peter Howitt},
title = {Competition and Innovation: An Inverted-U Relationship},
year = {2002}
}
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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. I.
