Competition and Innovation: An Experimental Investigation
University of Zurich - Department of Economics; Centre for Economic Policy Research (CEPR)
The paper analyzes the effects of more intense competition on firms' incentives to invest in process innovations. We carry out experiments based on two-stage games, where R&D investment choices are followed by product market competition. As predicted by theory, an increase in the number of firms from two to four reduces investments. However, a positive effect is observed for a switch from Cournot to Bertrand, even though theory predicts a negative effect in the four-player case.
working papers series
Date posted: October 28, 2008
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