Competition, Market Selection and Growth

We study the effect of the competitive selection process on the economy's rate of growth. In an extension of standard quality-ladder models of endogenous growth, we allow for the possibility that in each period several asymmetric firms (representing an endogenously determined number of past innovators) may be simultaneously active in an industry. Stronger competitive pressure then has conflicting effects on the incentive to innovate, lowering prices but also selecting the more efficient firms. We show that the market selection effect of competition always increases the incentive to innovate and find circumstances in which it can outweigh the traditional negative effect of lower prices. Copyright © The Author(s). Journal compilation © Royal Economic Society 2009

Competition (biology · Economics · Endogenous growth theory · Incentive · Industrial organization · Market economy · Microeconomics · Quality (philosophy · Selection (genetic algorithm · Economic Growth and Productivity · Economic theories and models · Firm Innovation and Growth

• Endogenous Market Structures and the Business Cycle

  Open Access•Federico Etro, Andrea Colciago•The Economic Journal•2010

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• Leadership Cycles in a Quality‐Ladder Model of Endogenous Growth

  Open Access•Vincenzo Denicolò, Piercarlo Zanchettin•The Economic Journal•2012

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• Industry Structure, Market Rivalry, and Public Policy

  Harold Demsetz•The Journal of Law and Economics•1973

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• Distance to Frontier, Selection, and Economic Growth

  Open Access•Daron Acemoglu, Philippe Aghion et al.•Journal of the European Economic…•2006

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• Competition, Imitation and Growth with Step-by-Step Innovation

  Philippe Aghion, Christopher Harris et al.•The Review of Economic Studies•2001

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• Competition and Innovation

  Open Access•Philippe Aghion, Nena Bloom et al.•SSRN Electronic Journal•2004

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• Competition for Market Share or for Market Size

  Open Access•Claude D’aspremont, Claude D'Aspremont et al.•International Economic Review•2007

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• A Model of Growth Through Creative Destruction

  Philippe Aghion, Peter Howitt•Econometrica•1992

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• Innovation and Growth in the Global Economy

  M Scott Taylor, Gene M Grossman et al.•Economica•1993

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• On the Welfare Effects and Political Economy of Competition‐Enhancing Policies

  Open Access•Philippe Aghion, Mark Schankerman•The Economic Journal•2004

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• Innovation by Leaders

  Open Access•Federico Etro•The Economic Journal•2004

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• Strategic R & D Policy

  John Beath, Yannis Katsoulacos et al.•The Economic Journal•1989

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