An Alternative Explanation of the Inverted-U Relationship between Competition and Innovation

Authors

KRČÁL Ondřej

Year of publication 2009
Type Article in Proceedings
Conference Neo-Schumpeterian Economics: An Agenda for the 21st Century II
MU Faculty or unit

Faculty of Economics and Administration

Citation
Keywords Schumpeter, innovation, competition, prospect theory, inverted-U relationship
Description In this article, we show that different profits due to different intensity of competition can influence innovation decisions of otherwise identical firms. Under certain conditions, firms with very high and very low profits will innovate less than firms with moderate profits, which is consistent with the hypothesis of inverted-U relationship between competition and innovation.

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