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

By Philippe Aghion, C. Harris, Peter Howitt, John Vickers. 2001

1,186 citations recorded by the source corpus.

Is more intense product market competition and imitation good or bad for growth? This question is addressed in the context of an endogenous growth model with "step-by-step" innovations, in which technological laggards must first catch up with the leading-edge technology before battling for technological leadership in the future. In contrast to earlier Schumpeterian models in which innovations are always made by outsider firms who earn no rents if they fail to innovate and become monopolies if they do innovate, here we find: first, that the usual Schumpeterian effect of more intense product market competition (PMC) is almost always outweighed by the increased incentive for firms to innovate in order to escape competition, so that PMC has a positive effect on growth; second, that a little imitation is almost always growth-enhancing, as it promotes more frequent neck-and-neck competition, but too much imitation is unambiguously growth-reducing. The model thus points to complementary roles for competition (anti-trust) policy and patent policy.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/2d7e141308a349fee60e23c55fa5ec46737c715a

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Citations in the corpus

Patent rights, product market reforms, and innovation (2015, methodology): “In this section we use the Schumpeterian growth model with step-by-step innovation of Aghion et al. (2001, 2014) to explain why patent protection and product market competition may be complementary in inducing innovation.”
Scale effects in endogenous growth theory: an error of aggregation not specification (2006, background): “Recent work by Klette and Kortum (2004), Thompson (2001), Aghion, Harris, Howitt, and Vickers (2001) , and Laincz (2005) moves in that direction.”
Mean Field Games and Applications (2011, background): “17see [6, 5, 4] for the link between growth and competition 18In practice everybody thinks there are people less gifted than he is.”
What Do We Learn from Schumpeterian Growth Theory (2013, neutral): “However, each product line comes with an “R&D option value,” that is, having one more production unit increases the firm’s R&D capacity as in (18) and therefore the firm’s value.”
How Valuable Is FinTech Innovation? (2019, positive): “…(see, e.g., Lieberman and Montgomery 1988; Henderson and Cockburn 1996; Christensen 1997; Adner 2012) and how incumbents can use their own innovation to protect themselves from outside threats (see Dasgupta and Stiglitz 1980; Gilbert and Newbery 1982; Aghion et al. 2001; Aghion and Griffith 2005).”