Competitive Pressure: The Effects on Investments in Product and Process Innovation
Volume: Volume 31, No. 3
Issue: Autumn 2000
Pages: pp. 549-569
Authors: Jan Boone
Title: Competitive Pressure: The Effects on Investments in Product and Process Innovation
Abstract: I analyze the effects of competitive pressure on a firm's incentives to invest in product and process innovations. I present a framework incorporating the selection and adaptation effects of product market competition on efficiency and the Schumpeterian argument for monopoly power. The effects of competition on a firm's innovations depend on whether a firm is complacent, eager, struggling, or faint, which is determined by the firm's efficiency level relative to that of its opponents. Finally, the following tradeoff is pointed out: a rise in competitive pressure cannot raise both product and process innovations at the industry level.
JEL Classification
Innovation and Invention: Processes and Incentives (O310 )
Capital Budgeting Investment Policy cost of capital (G310 )
Adaptation Firm Innovation Investment
pressure cannot raise both product and process innovations at the industry level.