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Growth, Competition and Welfare
Author(s) -
Van De Klundert Theo,
Smulders Sjak
Publication year - 1997
Publication title -
scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/1467-9442.00050
Subject(s) - oligopoly , economics , welfare , product market , competition (biology) , free entry , profit (economics) , microeconomics , endogenous growth theory , market structure , profit margin , market power , industrial organization , monopoly , market economy , incentive , ecology , finance , biology , human capital
The impact of competition on growth and welfare is analysed by developing a model in which the number of firms, profit margins and innovation rates are endogenous. Different regimes of oligopolistic competition are distinguished. The tougher the price competition, the lower the profit margins for a given rate of concentration. This reduces the number of firms and product variety in a free entry equilibrium. Consequently, tougher competition implies larger firm size and higher rates of innovation since new technologies can be applied in a larger market. Oligopolistic pricing leads to underinvestment in firm‐specific knowledge, even if inter‐firm knowledge spillovers are neglected.