Journal Article

Competition, Imitation and Growth with Step-by-Step Innovation

Philippe Aghion, Christopher Harris, Peter Howitt and John Vickers

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 68, issue 3, pages 467-492
Published in print July 2001 | ISSN: 0034-6527
Published online July 2001 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/1467-937X.00177
Competition, Imitation and Growth with Step-by-Step Innovation

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Is more intense product market competition and imitation good or bad for growth? This question is addressed in the context of an endogenous growth model with “step-by-step” innovations, in which technological laggards must first catch up with the leading-edge technology before battling for technological leadership in the future. In contrast to earlier Schumpeterian models in which innovations are always made by outsider firms who earn no rents if they fail to innovate and become monopolies if they do innovate, here we find: first, that the usual Schumpeterian effect of more intense product market competition (PMC) is almost always outweighed by the increased incentive for firms to innovate in order to escape competition, so that PMC has a positive effect on growth; second, that a little imitation is almost always growth-enhancing, as it promotes more frequent neck-and-neck competition, but too much imitation is unambiguously growth-reducing. The model thus points to complementary roles for competition (anti-trust) policy and patent policy.

Journal Article.  0 words. 

Subjects: Economics

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