Innovation and competition in a memory process


Correa, Juan A. (2010) Innovation and competition in a memory process. United Kingdom of Great Britain and Northern Ireland, GB, University of Southampton (Discussion Papers in Economics and Econometrics 1005).

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Description/Abstract

Does innovation boost or fall with more competition when innovation follows a memory process? This paper provides a theoretical model which analyzes the innovation and competition relationship assuming that innovation follows a short-memory process. I find innovation increases with more product market competition, even under unpriced spillovers. Assuming the probability to innovate increases with past innovations; a follower firm has large incentives to innovate, even in a highly competitive environment, since the memory obtained after innovating increases its probability to innovate again and become a leader. Therefore, industries will be most of the time neck-and-neck where firms innovate to escape from competition. Using the same dataset of Aghion et al. (2005) I also find there is a positive empirical relationship between innovation and competition. In the case of memoryless industries, I show there is no significant relationship between innovation and competition.

Item Type: Monograph (Discussion Paper)
ISSNs: 0966-4246 (electronic)
Related URLs:
Keywords: innovation, R&D, competition, memory process
Subjects: H Social Sciences > HB Economic Theory
Divisions: University Structure - Pre August 2011 > School of Social Sciences > Economics
ePrint ID: 80278
Date Deposited: 24 Mar 2010
Last Modified: 27 Mar 2014 19:03
Publisher: University of Southampton
URI: http://eprints.soton.ac.uk/id/eprint/80278

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