Competition and innovation in markets with technology leaders

Artikel

In this article, we consider technology leaders (which are innovators) and technology followers (which are non-innovators) to provide a new theoretical explanation for the well-cited empirical evidence of an inverted-U relationship between competition and aggregate innovation. We consider a two-stage game with a deterministic Research and Development (R&D) process, where the leaders first determine their R&D investments simultaneously and then all leaders and followers determine their outputs simultaneously. We show that the inverted-U relationship between competition and aggregate innovation occurs if competition is affected by the number of technology followers. However, the presence of more technology leaders decreases individual R&D investments while increasing aggregate R&D investments. If the total number of firms remains the same but the composition of technology leaders and followers changes in favor of leaders (followers), individual R&D investments decrease (increase) but aggregate R&D investments increase (decrease). The relationship between competition and R&D investments can be U-shaped if the intensity of competition is measured by product substitutability. Contrary to the standard expectation, the presence of more firms may reduce welfare.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: Games ; ISSN: 2073-4336 ; Volume: 13 ; Year: 2022 ; Issue: 1 ; Pages: 1-20 ; Basel: MDPI

Classification and Topics

• Classification: Wirtschaft ; Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection ; Oligopoly and Other Imperfect Markets ; Technological Change: Choices and Consequences; Diffusion Processes
• Subject: competition ; innovating firms ; non-innovating firms ; R&D investments ; welfare

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Tsao, Ku-Chu ; Mukherjee, Arijit ; Ray, Achintya
• Event: Veröffentlichung
• (who): MDPI
• (where): Basel
• (when): 2022

Further information

• DOI: doi:10.3390/g13010009
• Handle: http://hdl.handle.net/10419/257586
• Last update: 10.03.2025, 11:45 AM CET