Stepwise Innovation by an Oligopoly

Abstract

Stepwise models of technological progress described by Philippe Aghion and his co-authors (1997, 2001, 2005) capture the incentives of firms to innovate in order to escape competition and the disincentives from sharing profits with other technological leaders. The models yield intuitively appealing predictions about the effects of competition on innovation, but they are limited to competition in duopolies. This paper extends the models to oligopolies and shows that the predictions of the effects of competition on innovation from the duopoly models do not generalize to oligopolies.

Keywords: Competition, Innovation, Oligopoly

JEL Classification: L13, O31, L40