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Competition and investment — A unified approach


Schmutzler, Armin (2013). Competition and investment — A unified approach. International Journal of Industrial Organization, 31(5):477-487.

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.

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.

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Citations

10 citations in Web of Science®
10 citations in Scopus®
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65 downloads since deposited on 01 Nov 2013
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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Language:English
Date:2013
Deposited On:01 Nov 2013 15:17
Last Modified:05 Apr 2016 17:06
Publisher:Elsevier
ISSN:0167-7187
Publisher DOI:https://doi.org/10.1016/j.ijindorg.2013.07.010

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