Abstract
AbstractThis paper revisits the relationship between competition and innovation by incorporating the heterogeneity of R&D efficiency across firms and an endogenous market structure in a dynamic general equilibrium model. Using an analytically tractable model, we show that competition and innovation can have either an inverted‐U or a negative relationship, as reported by several empirical studies. Furthermore, we show that the effect of strengthening patent protection on innovation depends on the competition level. In particular, we find a complementary relationship between competition policy and the strengthening of patent protection.
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