Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/257586 
Year of Publication: 
2022
Citation: 
[Journal:] Games [ISSN:] 2073-4336 [Volume:] 13 [Issue:] 1 [Article No.:] 9 [Publisher:] MDPI [Place:] Basel [Year:] 2022 [Pages:] 1-20
Publisher: 
MDPI, Basel
Abstract: 
In this article, we consider technology leaders (which are innovators) and technology followers (which are non-innovators) to provide a new theoretical explanation for the well-cited empirical evidence of an inverted-U relationship between competition and aggregate innovation. We consider a two-stage game with a deterministic Research and Development (R&D) process, where the leaders first determine their R&D investments simultaneously and then all leaders and followers determine their outputs simultaneously. We show that the inverted-U relationship between competition and aggregate innovation occurs if competition is affected by the number of technology followers. However, the presence of more technology leaders decreases individual R&D investments while increasing aggregate R&D investments. If the total number of firms remains the same but the composition of technology leaders and followers changes in favor of leaders (followers), individual R&D investments decrease (increase) but aggregate R&D investments increase (decrease). The relationship between competition and R&D investments can be U-shaped if the intensity of competition is measured by product substitutability. Contrary to the standard expectation, the presence of more firms may reduce welfare.
Subjects: 
competition
innovating firms
non-innovating firms
R&D investments
welfare
JEL: 
D43
L13
O33
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
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