2019•International Journal of Industrial OrganizationOpen access

Innovation and competition: The role of the product market

Guillermo Marshall, Álvaro Parra

Abstract

We study how competition impacts innovation (and welfare) when firms compete both in the product market and in innovation development. This relationship is complex and may lead to scenarios in which a lessening of competition increases R&D and consumer welfare in the long run. We provide conditions for when competition increases or decreases industry innovation and welfare. These conditions are based on properties of the product market payoffs. Implications for applied work and policy are discussed.

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Key concepts: Competition (biology), Welfare, Industrial organization, Consumer welfare, Product (mathematics), Product market, Product innovation, Economics