33 Pages Posted: 12 Jul 2010
Date Written: 2010
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: 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
By C. Benkard