Growth, competition and welfare

The impact of competition on growth and welfare is analyzed by developing a model in which the number of firms, profit margins, and innovation rates are endogenous. Different regimes of oligopolistic competition are distinguished. The tougher the price competition, the lower the profit margins for a given rate of concentration. This reduces the number of firms and product variety in a free entry equilibrium. Consequently, tougher competition implies larger firm size and higher rates of innovation since new technologies can be applied in a larger market. Oligopolistic pricing leads to underinvestment in firm-specific knowledge, even if interfirm spillovers are neglected. Copyright 1997 by The editors of the Scandinavian Journal of Economics.

[1]  Hugo Sonnenschein,et al.  General Equilibrium with Free Entry: A Synthetic Approach to the Theory of Perfect Competition* , 1983 .

[2]  B. Heijdra,et al.  Monopolistic Competition and Optimum Product Diversity: Comment , 1993 .

[3]  Jennifer F. Reinganum.  The timing of innovation: Research, development, and diffusion , 1989 .

[4]  O. Hart.  MONOPOLISTIC COMPETITION IN THE SPIRIT OF CHAMBERLIN: SPECIAL RESULTS , 1985 .

[5]  John Sutton,et al.  Sunk Costs and Market Structure: Price Competition, Advertising, and the Evolution of Concentration , 1992 .

[6]  G. Dosi.  Sources, Procedures, and Microeconomic Effects of Innovation , 1988 .

[7]  Peter Hall.  Innovation, Economics and Evolution: Theoretical Perspectives on Changing Technology in Economic Systems , 1994 .

[8]  P. Romer.  Endogenous Technological Change , 1989, Journal of Political Economy.

[9]  P. Dasgupta,et al.  Industrial Structure and the Nature of Innovative Activity , 1980 .

[10]  J. Smulders.  Growth, market structure and the environment: Essays on the theory of endogenous economic growth , 1994 .

[11]  D. Ulph,et al.  Sequential Product Innovation and Industry Evolution , 1987 .

[12]  G. Grossman,et al.  Innovation and growth in the global economy , 1993 .

[13]  T. Klundert,et al.  Imperfect competition, concentration and growth with firm-specific R&D , 1995 .

[14]  Market R&D Allocations When Research Paths Are Product Specific , 1993 .

[15]  K. Pavitt.  Sectoral Patterns of Technical Change : Towards a Taxonomy and a Theory : Research Policy , 1984 .

[16]  A. Dixit,et al.  Monopolistic competition and optimum product diversity , 1977 .

[17]  A. Venables,et al.  Completing the internal market in the European Community: Some industry simulations , 1988 .