Competitive Pressure, Selection and Investment in Development and Fundamental Research

CentER Discussion Paper Series No. 1998-42

Posted: 16 Nov 1998

See all articles by Jan Boone

Jan Boone

Tilburg University - Center for Economic Research (CentER); Centre for Economic Policy Research (CEPR); TILEC

Date Written: 1998

Abstract

This paper analyses the effects of competitive pressure on a firm's incentives to undertake both fundamental research and development. It presents a new framework incorporating the selection effect of product market competition, the Schumpeterian argument for monopoly power, the Nickell/Porter argument for competitive pressure and the infant industry argument for protection. The key insight is that the effects of competitive pressure on a firm's incentives to innovate depend on the firm's efficiency level relative to that of its opponents. Finally the effects of competitive pressure on industry wide fundamental research and development are analyzed. It turns out that there is a trade off between development and fundamental research: a rise in competitive pressure cannot raise both types of innovative activity at the industry level.

JEL Classification: D43, L1, O31

Suggested Citation

Boone, Jan, Competitive Pressure, Selection and Investment in Development and Fundamental Research (1998). CentER Discussion Paper Series No. 1998-42, Available at SSRN: https://ssrn.com/abstract=138088

Jan Boone (Contact Author)

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2399 (Phone)
+31 13 466 3042 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

TILEC ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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