Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/56370
Authors: 
Tinqvall, Patrik Gustavsson
Karpaty, Patrik
Year of Publication: 
2008
Series/Report no.: 
SSE/EFI Working Paper Series in Economics and Finance 702
Abstract: 
The central prediction of the Aghion et al. (2005) model is an inverted U-shaped relation between innovation and competition. The model is built on the assumption of a product market and has not yet been empirically tested on service-sector firms. Using detailed firm-level data, we find the inverse U-shaped relation to hold for both small and large service-sector firms. However, non-exporting service firms deviate from the overall pattern. A more detailed breakdown of innovation expenditures shows that the inverse U-shaped pattern holds for both intramural R&D and training, but not for extramural R&D. Finally, as competition increases, small firms tend to seek more strategic alliances with competitors while large firms tend to decrease their collaboration with competitors. To some extent, the behavior of large firms can be due to their greater capacity to handle innovation projects internally and as competition increases, so does the payoff of an edge to competitors.
Subjects: 
R&D
innovation
competition
service sector
JEL: 
D40
L10
L60
O30
Document Type: 
Working Paper

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