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Competition, innovation, and the effect of knowledge accumulation

Author

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  • Steinmetz, Alexander
Abstract
The question this paper addresses is how the market structure evolves due to innovative activities when firms' level of technological competence is valuable for more than one project. The focus of the work is the analysis of the effect of learningbydoing and organizational forgetting in R&D on firms' incentives to innovate. A dynamic step-by-step innovation model with history dependency is developed. Firms can accumulate knowledge by investing in R&D. As a benchmark without knowledge accumulation it is shown that relaxing the usual assumption of imposed imitation yields additional strategic effects. Therefore, the leader's R&D effort increases with the gap as she is trying to avoid competition in the future. When firms gain experience by performing R&D the resulting effect of knowledge induces technological leaders to rest on their laurels which allows followers to catch up. Contrary to the benchmark case the leader's innovation effort declines with the lead. This causes an equilibrium where the incentives to innovate are highest when competition is most intense.

Suggested Citation

  • Steinmetz, Alexander, 2010. "Competition, innovation, and the effect of knowledge accumulation," W.E.P. - Würzburg Economic Papers 81, University of Würzburg, Department of Economics.
    • Handle: RePEc:zbw:wuewep:81
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    References listed on IDEAS

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    Cited by:

    1. Jingjing Wang & Chi Leung & Yue Kwok, 2015. "Stochastic control model for R&D race in a mixed duopoly with spillovers and knowledge stocks," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 38(2), pages 177-195, October.

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    More about this item

    Keywords

    competition; innovation; knowledge; market structure;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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