The Causal Effects of Competition on Innovation: Experimental Evidence

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The Causal Effects of Competition on Innovation: Experimental Evidence

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Title: The Causal Effects of Competition on Innovation: Experimental Evidence
Author: Aghion, Philippe; Bechtold, Stefan; Cassar, Lea; Herz, Holger

Note: Order does not necessarily reflect citation order of authors.

Citation: Aghion, Philippe, Stefan Bechtold, Lea Cassar, and Holger Herz. 2014. The causal effects of competition on innovation: Experimental evidence. Working paper, Department of Economics, Harvard University.
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Abstract: In this paper, we design two laboratory experiments to analyze the causal effects of competition on step-by-step innovation. Innovations result from costly R&D investments and move technology up one step. Competition is inversely measured by the ex post rents for firms that operate at the same technological level, i.e. for neck-and-neck firms. First, we find that increased competition leads to a significant increase in R&D investments by neck-and-neck firms. Second, increased competition decreases R&D investments by firms that are lagging behind, in particular if the time horizon is short. Third, we find that increased competition affects industry composition by reducing the fraction of sectors where firms are neck-and-neck. All these results are consistent with the predictions of step-by-step innovation models.
Other Sources: http://www.nber.org/papers/w19987
Terms of Use: This article is made available under the terms and conditions applicable to Other Posted Material, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#LAA
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:27738688
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