|Date:||01 May 2005|
|Authors:||Philippe Aghion , Nicolas Bloom , Richard Blundell , Rachel Griffith and Peter Howitt|
|Publisher:||Oxford University Press|
|Published in:||Quarterly Journal of Economics , Vol. 120, No. 2, pp. 701-728|
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.
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