Innovation and competition in a memory process
Innovation and competition in a memory process
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.
innovation, R&D, competition, memory process
University of Southampton
Correa, Juan A.
cd6ee1a3-f58b-4f18-941c-3b24512efc35
1 March 2010
Correa, Juan A.
cd6ee1a3-f58b-4f18-941c-3b24512efc35
Correa, Juan A.
(2010)
Innovation and competition in a memory process
(Discussion Papers in Economics and Econometrics, 1005)
United Kingdom of Great Britain and Northern Ireland, GB.
University of Southampton
Record type:
Monograph
(Discussion Paper)
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.
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Published date: 1 March 2010
Keywords:
innovation, R&D, competition, memory process
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Local EPrints ID: 80278
URI: http://eprints.soton.ac.uk/id/eprint/80278
ISSN: 0966-4246
PURE UUID: e059ef6f-614a-4614-8cef-028d67bd31e0
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Date deposited: 24 Mar 2010
Last modified: 10 Dec 2021 17:37
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Author:
Juan A. Correa
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