Endogenous Spillovers and Incentives to Innovate
Swiss Federal Institute of Technology Zurich, (CER-ETH); Institute for the Study of Labor (IZA); CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Centre for Economic Policy Research (CEPR)
University of Zurich - Department of Economics Library; Centre for Economic Policy Research (CEPR)
We present a new approach to endogenizing technological spillovers. Firms choose continuous levels of a cost-reducing innovation before they engage in competition for each other's R&D-employees. Successful bids for the competitor's employee then result in higher levels of cost-reduction. Finally, firms enter product market competition. We apply the approach to the long-standing debate on the effects of the mode of competition on innovation incentives. We show that incentives to acquire spillovers are stronger and incentives to prevent spillovers are weaker under quantity competition than under price competition. As a result, for a wide range of parameters, price competition gives stronger innovation incentives than quantity competition.
Number of Pages in PDF File: 18
JEL Classification: L11, O31working papers series
Date posted: June 8, 1999
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