Intensity of competition and incentive to innovate
JEL Classification: L13; O31
Keywords: Competition; R&D
Abstract: The effects in intensity of product market competition on R&D incentives are analyzed in a model capturing the strategic interactions between firms with different cost levels. First, four axioms are proposed that a measure of intensity of competition should satisfy. Then the effects of intensity of competition on the value of innovation are analyzed. And it is shown that the axioms imply the existence of a non-monotone relation between intensity of competition and the value of an innovation.