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This paper presents econometric evidence of two independent effects of adding more competitors on innovation: A competition effect whereby increasing rivalry shapes, and often decreases, incentives to expend effort and invest in innovation; and a parallel search effect whereby adding greater numbers of "Searchers" benefits innovation by broadening the search for solutions. They further show the importance of these effects depends on the nature of the innovation problem being solved. Econometric relationships are identified by exploiting random assignment and a separate instrumental variables procedure.
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