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Experimental Economics

, Volume 13, Issue 4, pp 439–460 | Cite as

Competition and innovation: an experimental investigation

  • Donja Darai
  • Dario Sacco
  • Armin SchmutzlerEmail author
Article

Abstract

The paper analyzes the effects of more intense competition on firms’ investments in process innovations. More intense competition corresponds to an increase in the number of firms or a switch from Cournot to Bertrand competition. We carry out experiments for two-stage games, where R&D investment choices are followed by product market competition. An increase in the number of firms from two to four reduces investments, whereas a switch from Cournot to Bertrand increases investments, even though theory predicts a negative effect in the four-player case. The results arise both in treatments in which both stages are implemented and in treatments in which only one stage is implemented. However, the positive effect of moving from Cournot to Bertrand competition is more pronounced in the former case.

Keywords

R&D investment Intensity of competition Experiment 

JEL Classification

C92 L13 O31 

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Copyright information

© Economic Science Association 2010

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of ZurichZurichSwitzerland

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