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Impact of Technical Progress on the Relationship Between Competition and Investment

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  • François Jeanjean

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Abstract

This paper investigates the impact of technical progress on the relationship between competition and investment. Using a model of oligopolistic competition with differentiated products in which firms invest to reduce their marginal cost of production (or to improve quality), I find that technical progress, by increasing the size of innovation, defined as the drop in marginal costs (or the increase in quality) obtained for a given investment amount, increases total investment and decreases the level of competition that maximizes investment in the industry. This feature also holds for consumer surplus and welfare. This means that innovative industries maximize consumer surplus and welfare at a lower level of competitive pressure than do less innovative industries. In the model, competition is measured either by the number of competitors or by the degree of horizontal substitutability between offers. The results hold for both measures, subject to a relatively steady industry specific rate of technological change.

Suggested Citation

  • François Jeanjean, 2021. "Impact of Technical Progress on the Relationship Between Competition and Investment," Journal of Industry, Competition and Trade, Springer, vol. 21(1), pages 81-101, March.
    • Handle: RePEc:kap:jincot:v:21:y:2021:i:1:d:10.1007_s10842-020-00341-5
    DOI: 10.1007/s10842-020-00341-5
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    Cited by:

    1. Lefouili, Yassine & Madio, Leonardo, 2023. "Market Structure and Investments : A Progress Report," TSE Working Papers 23-1491, Toulouse School of Economics (TSE), revised Sep 2024.
    2. Stéphane Ciriani & François Jeanjean, 2022. "Competition, technological change and productivity gains: a European sectoral analysis," Economics Bulletin, AccessEcon, vol. 42(2), pages 927-946.
    3. Aimene, Louise & Jeanjean, François & Liang, Julienne, 2021. "Impact of mobile operator consolidation on unit prices," Telecommunications Policy, Elsevier, vol. 45(4).
    4. Stéphane Ciriani & François Jeanjean, 2020. "Competition, Technological Change and Productivity Gains: A Sectoral Analysis," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 55(3), pages 192-198, May.
    5. Jeanjean, François & Liang, Julienne, 2023. "Market structure and performance in mobile markets. The example of Europe," 32nd European Regional ITS Conference, Madrid 2023: Realising the digital decade in the European Union – Easier said than done? 277979, International Telecommunications Society (ITS).
    6. Korayim, Diana & Chotia, Varun & Jain, Girish & Hassan, Sharfa & Paolone, Francesco, 2024. "How big data analytics can create competitive advantage in high-stake decision forecasting? The mediating role of organizational innovation," Technological Forecasting and Social Change, Elsevier, vol. 199(C).

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    More about this item

    Keywords

    Market structure; Investment; Technical progress; Competition;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • 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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