'Collusion' with Public and Private Ownership and Innovation
49 Pages Posted: 24 Oct 2017 Last revised: 4 Nov 2019
Date Written: November 3, 2019
Head-to-head competition hurts profitability, and firms can benefit from avoiding it. Our model argues that strict transparency requirements help public firms soften competition and studies how that affects innovation aimed at displacing rivals. We show that intermediately attractive innovation thrives best in private firms, as opportunities to soften competition on existing technologies undermine public firms' commitment to innovation. However, being public dominates if innovating is either unattractive or highly attractive. In the latter case, public firms try to displace rivals by innovating but avoid competition when lacking a technological edge. Our predictions explain conflicting evidence regarding innovation in public firms.
Keywords: Public and Private Ownership, Innovation, Collusion
JEL Classification: G31, G32, L41, O31
Suggested Citation: Suggested Citation