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Innovation, Competition and Incentives for R&D

33 Pages Posted: 12 Jul 2010  

Martin Woerter

Swiss Federal Institute of Technology Zurich (ETH) - Swiss Institute for Business Cycle Research (KOF)

Christian Rammer

Centre for European Economic Research (ZEW) - Industrial Economics and International Management Research

Spyros Arvanitis

Swiss Federal Institute of Technology Zurich (ETH) - Swiss Institute for Business Cycle Research (KOF)

Multiple version iconThere are 2 versions of this paper

Date Written: 2010

Abstract

This paper analyses the relationship between past innovation output, competition, and future innovation input in a dynamic econometric setting. We distinguish two dimensions of competition that correspond to the concepts of product substitutability and entry barriers due to fixed costs. Based on firm-level panel data for Germany and Switzerland we obtain consistent results for both countries. Innovation output in t-1 as measured by the sales share of innovative products is positively related to the degree of product obsolescence in t, and negatively to the degree of substitutability in t in both countries. Further, we find that rapid product obsolescence provides positive incentives for higher – primarily product-oriented – R&D investments in t 1, while high substitutability exerts negative incentives for future R&D investment.

Keywords: Innovation, R&D, Competition

JEL Classification: O3

Suggested Citation

Woerter, Martin and Rammer, Christian and Arvanitis, Spyros, Innovation, Competition and Incentives for R&D (2010). ZEW - Centre for European Economic Research Discussion Paper No. 10-039. Available at SSRN: https://ssrn.com/abstract=1638867 or http://dx.doi.org/10.2139/ssrn.1638867

Martin Woerter

Swiss Federal Institute of Technology Zurich (ETH) - Swiss Institute for Business Cycle Research (KOF) ( email )

CH-8092 Zurich
Switzerland

Christian Rammer (Contact Author)

Centre for European Economic Research (ZEW) - Industrial Economics and International Management Research ( email )

P.O. Box 10 34 43
L 7,1 D-68161 Mannheim
Germany

Spyros Arvanitis

Swiss Federal Institute of Technology Zurich (ETH) - Swiss Institute for Business Cycle Research (KOF) ( email )

CH-8092 Zurich
Switzerland
+41 44 632 51 68 (Phone)
+41 44 632 13 52 (Fax)

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