Competition and Innovation Revisited: A Product-Level View

115 Pages Posted: 1 Oct 2020 Last revised: 8 Feb 2022

See all articles by Jon A. Garfinkel

Jon A. Garfinkel

University of Iowa - Tippie College of Business

Mosab Hammoudeh

California State University, Fullerton - College of Business and Economics

Date Written: February 8, 2022

Abstract

We study the effect of competition on firm innovation at the project-level. We instrument shocks to competition in therapeutic areas with the FDA’s breakthrough therapy designation (BTD) event on a therapy, and confirm these events associate with several indicators of competitive shocks. We then show that BTD shocks discourage rivals’ innovation in that therapeutic area on average; but the effect varies with ex-ante competitiveness of the therapeutic area, as well as with the rival’s position (leader vs. follower) in that space. We support Aghion et al. (2005) with direct causal evidence at the corporate-project-level.

Keywords: Competition, Product Markets, Innovation, Peer Effects, Breakthrough, Pharmaceutical Innovation

JEL Classification: L1, O31, O38

Suggested Citation

Garfinkel, Jon A. and Hammoudeh, Mosab, Competition and Innovation Revisited: A Product-Level View (February 8, 2022). Available at SSRN: https://ssrn.com/abstract=3684095 or http://dx.doi.org/10.2139/ssrn.3684095

Jon A. Garfinkel

University of Iowa - Tippie College of Business ( email )

108 PBB
Iowa City, IA 52242-1000
United States
319-335-0943 (Phone)
319-335-3690 (Fax)

HOME PAGE: http://www.biz.uiowa.edu/faculty/jgarfinkel

Mosab Hammoudeh (Contact Author)

California State University, Fullerton - College of Business and Economics ( email )

Fullerton, CA
United States

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