Product Market Competition, technology spillovers and Competition Policy

How do product market competition and technology spillovers affect innovation?

See Competition and Innovation: An Inverted U Relationship

From the perspective of one firm the effect of R&D by a rival firm has two effects: First the rivals' innovations can help by creating useful new ideas ('knowledge spillovers'). Secondly the rivals' innovations can harm by stealing market share from the first firm. The empirical literature has largely failed to adequately distinguish between the positive externalities (spillovers) and negative externalities (rivalry) of competitors' innovative activity. We develop theoretical foundations and conduct focused empirical analysis on US firms showing that both factors matter, on average the beneficial effects dominate. Consequently R&D will still tend to be under-supplied in the free market - see Identifying Technology Spillovers and Product Market Rivalry.

We are creating a large firm panel of innovation, product and technology market 'closeness' on US and European data (Compustat and Amadeus). We are also investigating some high tech industries in detail to see how our models perform in a sector where we can specify the mechanisms and models in greater detail. One such industry is computer hardware and software which has been at the centre of many competition policy debates, such as the Microsoft cases - see:
Is There a Market for Work Group Servers? Evaluating Market Level Demand Elasticities. Using Micro and Macro Models
- and -
The Growth of Network Computing: Quality Adjusted Price Changes for Network Servers

Part of this project is funded by an European Union grant.

We are also looking at the importance of geographical distance and national boundaries to the movement of ideas. We have found the first evidence that distance appears to be dying when it comes to new knowledge.
Related publication:
Is distance dying at last? Falling home bias in fixed effects models of patent citations, CEP Discussion Paper 818, R. Griffith, S. Lee and J. Vanreenen, August 2007

For further information contact Sharon Belenzon

Link to CEP Press release - The Microsoft Decision

Link to news item - on the impact of the credit crunch on competition productivity

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