Credit Constraints and the Inverted‐U Relationship Between Competition and Innovation

Datos Bibliográficos

ID9725849
AutoresRoberto Bonfatti (0000-0002-0924-5149, University of Padua and University of Nottingham), Luigi Pisano (Gooldie)
Año2020
Volumen87
Número346
Páginas442-469
Fecha de publicación2020-04-01
Peer ReviewedSí
Open AccessSí
TipoARTICLE
RevistaEconomica (JOURNAL)
Identificadores de la revistaISSN: 0013-0427 • E-ISSN: 1468-0335
EditorialWiley (PUBLISHER • GB)
DOI10.1111/ecca.12312
OpenAlexW2946553729
IdiomaEN
Citas recibidas2
Referencias citadas34

Empirical studies have uncovered an inverted‐U relationship between product‐market competition and innovation. This is inconsistent with the original Schumpeterian model, where greater competition always reduces the profitability of innovation and thus the incentives to innovate. We show that the model can predict the inverted‐U if the innovators’ talent is heterogeneous and asymmetrically observable. When competition is low and profitability is high, talented innovators are credit‐constrained, since untalented innovators are eager to mimic them. As competition increases and profitability decreases, untalented innovators become less eager to mimic, and talented innovators can invest more. This generates the increasing part of the relationship. When competition is high and profitability is low, credit constraints disappear, and the relationship is decreasing. Our theory generates additional specific predictions that are well borne out by the existing evidence

Business · Competition (biology) · Cournot competition · Economics · Empirical evidence · Incentive · Industrial organization · Microeconomics · Product (mathematics) · Product differentiation · Product market · Profitability index · Corporate Finance and Governance · Finance · Firm Innovation and Growth · Private Equity and Venture Capital