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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).

Record type: Monograph (Discussion Paper)


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


Local EPrints ID: 80278
ISSN: 0966-4246
PURE UUID: e059ef6f-614a-4614-8cef-028d67bd31e0

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Date deposited: 24 Mar 2010
Last modified: 18 Jul 2017 23:14

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Author: Juan A. Correa

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