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Journal of Industry, Competition and Trade

, Volume 12, Issue 1, pp 93–117 | Cite as

Competition and Innovation in Luxembourg

  • Chiara Peroni
  • Ivete S. Gomes Ferreira
Article

Abstract

This paper studies the empirical relation between market competition and innovation using Luxembourg’s Structural Business Statistics. The competitive pressure in Luxembourg’s markets is assessed by computing a profit elasticity measure, based on the idea of cost-efficiency. From this, the paper analyses the relation between competition and innovation performance by estimating an equation for the determinants of R&D expenditure. The results show that Luxembourg’s industries are characterised by low levels of competition intensity, especially in markets relevant to competition policy and regulation. The relation between competition and innovation is non-linear and depends crucially on the efficient use of inputs to production. The impact of the distribution of technological efficiency on innovation is assessed by measuring both average technology gap and technology spread. The innovation effort is increasing as industries are closer to the frontier, and decreasing in the technology spread.

Keywords

competition innovation profit elasticity R&D 

JEL Classification

C24 L10 031 

Notes

Acknowledgements

Chiara Peroni is a researcher at the Service Central de la Statistique et des Études Économiques (Statec). This work has been carried out while the author was involved in the Partnership between Statec, the Observatoire de la Compétitivité and the Centre de Recherche Henri Tudor, under the research agreement signed by these institutions in 2005. Ivete S. Gomes Ferreira has contributed to this paper while working at the CRP/Statec. The opinions and views expressed in this paper are those of the authors and do not reflect those of the Statec, the CRP, and the Observatoire. Thanks are due to an anonymous referee, Charles-Henri DiMaria, Anna-Leena Asikainen, George Zangerlé, Serge Allegrezza and Bastien Larue for useful comments. I am grateful to participants at the Luxembourg 2020 conference (“4me colloque luxembourgeois sur l’economie de la connaissance”, Luxembourg, 7th–9th December 2010), where a previous version of this paper was presented, for interesting discussion. I am also grateful to Anne Dubrocard and my colleagues at the EPR2 unit at Statec for their help and support and to members of the Scientific Committee of Statec-Tudor-Observatoire partnership for their feedback.

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Copyright information

© Springer Science+Business Media, LLC 2011

Authors and Affiliations

  1. 1.Service Central de la Statistique et des Études Économiques (STATEC)LuxembourgGrand Duchy of Luxembourg

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