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Competition and investment — A unified approach

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  • Schmutzler, Armin

Abstract

Using a simple but general two-stage framework, this paper identifies the circumstances under which increasing competition leads to more cost-reducing investments. The framework can, for instance, capture increasing substitutability for different types of oligopoly models or changes from Cournot to Bertrand competition. The paper identifies four transmission mechanisms by which competition affects investment. For a firm with lower initial marginal costs (higher efficiency), a positive effect of competition on investment is more likely. Positive spillovers support a negative effect of competition on investment. The relation between competition and investment is not affected in an unambiguous way by the level of pre-existing competition.

Suggested Citation

  • Schmutzler, Armin, 2013. "Competition and investment — A unified approach," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 477-487.
    • Handle: RePEc:eee:indorg:v:31:y:2013:i:5:p:477-487
    DOI: 10.1016/j.ijindorg.2013.07.010
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    More about this item

    Keywords

    Competition; Investment; Cost reduction; Innovation; R&D;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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