Essays on competition, innovation and growth
The thesis collects four essays in the fields of competition and innovation economics. In chapter 1, we review the recent growth literature that analyses the effects of product market competition on growth. Contrary to the negative effect predicted by the early endogenous growth models, this literature emphasises that product market competition may foster innovation and growth. We argue that a common characteristic of this literature is a decrease in the intensity of technological competition relative to the early models, which seems to support the positive link between product market competition and growth. In chapter 2, we study the effect of product market competition on growth in an endogenous growth model that maintains the intensity of R&D competition of the early models. We extend the early models by accounting for the possibility that many asymmetric firms (i.e. successive innovators) are simultaneously active in each industry. We show that an increase in competitive pressure exerts two positive effects on the incentive to innovate, which contrast the negative effect due to lower prices: the productive efficiency effect and the front loading of profits. We demonstrate circumstances in which the productive efficiency effect dominates the price effect, leading to a positive link between competition and growth. In chapter 3, we reconsider the comparison between Bertrand and Cournot competition in a differentiated duopoly with asymmetric costs. Our main finding is that, with high degrees of cost asymmetry and/or low degrees of product differentiation, the efficient firm’s and the industry profits are higher under Bertrand competition. This contrasts with Singh and Vives (1984) seminal result that, with substitute goods, equilibrium profits are always higher with Cournot competition. In chapter 4, we study vertical integration and product innovation as interdependent strategic choices of vertically related firms. Our main finding is that, although product differentiation allows to soften product market competition and to avoid market foreclosure, the downstream market may prefer less product differentiation to prevent vertical integration. Therefore, less product innovation can be a possible social cost of a lenient antitrust policy.