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Competition, R&D, and the cost of innovation: evidence for France

Abstract : Aghion and coauthors put forward a model which exhibits an inverted-U-shape relationship between innovation and competition: competition may increase the innovation profit margin for firms close to the technological frontier (since they escape competition) but strong competition could also reduce incentives to innovate for laggards (disincentive effect). However their analysis does not take firm size into account. This paper explores this link. Our model stresses that size should matter: if innovations are large-scale and costly in the firm's sector or relatively to the size of the firm, competitive shocks have to be large enough to change innovation choices. Using a unique panel of French firms we show an inverted-U-shape relationship that becomes flatter when the relative cost of R&D increases until it vanish altogether for small firms.
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Contributor : Caroline Bauer Connect in order to contact the contributor
Submitted on : Saturday, April 13, 2013 - 11:22:15 AM
Last modification on : Friday, April 29, 2022 - 10:12:58 AM



Philippe Askenazy, Christophe Cahn, Delphine Irac. Competition, R&D, and the cost of innovation: evidence for France. Oxford Economic Papers, 2013, 65 (2), pp.293-311. ⟨10.1093/oep/gps071⟩. ⟨hal-00812892⟩



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