Working Paper: NBER ID: w19987
Authors: Philippe Aghion; Stefan Bechtold; Lea Cassar; Holger Herz
Abstract: In this paper, we design two laboratory experiments to analyze the causal effects of competition on step-by-step innovation. Innovations result from costly R&D investments and move technology up one step. Competition is inversely measured by the ex post rents for firms that operate at the same technological level, i.e. for neck-and-neck firms. First, we find that increased competition leads to a significant increase in R&D investments by neck-and-neck firms. Second, increased competition decreases R&D investments by firms that are lagging behind, in particular if the time horizon is short. Third, we find that increased competition affects industry composition by reducing the fraction of sectors where firms are neck-and-neck. All these results are consistent with the predictions of step-by-step innovation models.
Keywords: competition; innovation; R&D; experimental economics
JEL Codes: C91; L10; O31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increased competition (L13) | Increase in R&D investments by neck-and-neck firms (O32) |
| Increased competition (L13) | Decrease in R&D investments by laggard firms (O39) |
| Anticipated escape-competition effect (D84) | Mitigation of the Schumpeterian effect for laggards (O39) |
| Increased competition (L13) | Reduction in the fraction of neck-and-neck sectors (F12) |