Competitive Pressure, Selection and Investments in Development and Fundamental Research

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Abstract

This paper analyses the effects of competitive pressure on a firm's incentives to undertake both fundamental research and development. It presents a new framework incorporating the selection effect of product market competition, the Schumpeterian argument for monopoly power, the Nickell/Porter argument for competitive pressure and the infant industry argument for protection. The key insight is that the effects of competitive pressure on a firm's incentives to innovate depend on the firm's efficiency level relative to that of its opponents. Finally the effects of competitive pressure on industry wide fundamental research and development are analyzed. It turns out that there is a trade off between development and fundamental research: a rise in competitive pressure cannot raise both types of innovative activity at the industry level.
Original languageEnglish
Place of PublicationTilburg
PublisherMacroeconomics
Number of pages38
Volume1998-42
Publication statusPublished - 1998

Publication series

NameCentER Discussion Paper
Volume1998-42

Keywords

  • Competition
  • R&D
  • Selection

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