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Author: | Denicoló, V. Zanchettin, P. |
Title: | Competition, market selection and growth |
Journal: | Economic Journal
2010 : JUN, VOL 120:545 p. 761-785 |
Index terms: | competition market search growth incentives efficiency innovation |
Language: | eng |
Abstract: | The effect of the competitive selection process on the economy's rate of growth is studied in this paper. In an extension of standard quality-ladder models of endogenous growth, the possibility that in each period several asymmetric firms may be simultaneously active in an industry, is allowed for. Stronger competitive pressure then has conflicting effects on the incentive to innovate, lowering prices but also selecting the more efficient firms. It is shown 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. |
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