Competition, Market Selection and Growth

25 Pages Posted: 4 Jun 2010

Date Written: 2009-08-01

Abstract

We study the effect of the competitive selection process on the economy's rate of growth. In an extension of standard quality-ladder models of endogenous growth, we allow for the possibility that in each period several asymmetric firms (representing an endogenously determined number of past innovators) may be simultaneously active in an industry. Stronger competitive pressure then has conflicting effects on the incentive to innovate, lowering prices but also selecting the more efficient firms. We show that the market selection effect of competition always increases the incentive to innovate and find circumstances in which it can outweigh the traditional negative effect of lower prices.

Suggested Citation

Denicolo, Vincenzo and Zanchettin, Piercarlo, Competition, Market Selection and Growth (2009-08-01). The Economic Journal, Vol. 120, Issue 545, pp. 761-785, June 2010, Available at SSRN: https://ssrn.com/abstract=1619049 or http://dx.doi.org/10.1111/j.1468-0297.2009.02313.x

Vincenzo Denicolo (Contact Author)

University of Bologna ( email )

Strada Maggiore 45
Bologna, 40125
Italy

Piercarlo Zanchettin

University of Leicester ( email )

Department of Economics
Leicester, LE1 7RH
United Kingdom

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