The Effects of Competition on Investment - Towards a Taxonomy

Posted: 28 Oct 2008  

Armin Schmutzler

University of Zurich - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: April 2008

Abstract

Using a general two-stage framework, this paper gives sufficient conditions for increasing competition to have negative or positive effects on R&D-investment, respectively. Both possibilities arise in plausible situations, even if one uses relatively narrow concepts of increasing competition. The paper also shows that competition is more likely to increase the investments of leaders than those of laggards. When R&D-spillovers are strong, competition is less likely to increase investments. The paper also identifies conditions under which low initial levels of competition make a positive effects of competition on investment more likely.

Keywords: competition, investment, cost reduction

JEL Classification: L13, L20, L22

Suggested Citation

Schmutzler, Armin, The Effects of Competition on Investment - Towards a Taxonomy (April 2008). Available at SSRN: https://ssrn.com/abstract=1291108

Armin Schmutzler (Contact Author)

University of Zurich - Department of Economics ( email )

Z├╝rich, CH-8006
Switzerland

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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