Competition and innovation: an experimental investigation

Abstract

R&D investment, Intensity of competition, Experiment, C92, L13, O31,

The Causal Effects of Competition on Innovation: Experimental Evidence

“…They show that per-capita investments are decreasing with the number of contestants, whereas the aggregate level of investment increases. Darai et al (2010) find similar results in a two-stage game in which R&D investment choices are followed by product market competition. Moreover, in a twostage game with cost-reducing investments followed by a differentiated Cournot duopoly, Sacco and Schmutzler (2011) find a U-shape relationship between competition and innovation, the former being defined as the degree of product differentiation.…”

Is there a U-shaped relation between competition and investment?

“…Moreover, to the extent that the literature deals with the effects of competition on investment, it considers only the role of the number of firms and of switches from Cournot to Bertrand competition. Darai et al (2009) consider homogenous goods models with two and four firms. Consistent with the earlier literature, they show that a larger number of firms lowers investments for both Cournot and Bertrand competition, whereas increasing competition in the sense of moving from Cournot to Bertrand has a positive effect on investments.…”

Is Competition Good for Innovation? A Simple Approach to an Unresolved Question

“…The deviation is more pronounced for intense competition, so that moving from intermediate to intense competition has no significant effect on investments. Darai et al (2010) also deal with the effects of switching from Cournot to Bertrand investments, considering both the case of two and of four players: Increasing competition in 4 In the same spirit, two early contributions of Isaac andReynolds (1988, 1992) deal with patent races and show that an increase in competition in the sense of a larger number of firms indeed has a negative effect on investments 5 The two-stage treatments correspond exactly to the theoretical structure of the game.…”

“…This effect also played an important role for the analysis of innovation incentives under endogenous entry Section (6.1). Darai et al (2010) consider homogenous goods models with two and four firms. They show that an increase in the number of firms reduces investments, as predicted.…”