Competition as a Discovery Procedure: Schumpeter Meets Hayek in a Model of Innovation
- (pp. 124-52)
Abstract
I incorporate an insight of Friedrich Hayek—that competition allows a thousand flowers to bloom, and discovers the best among them—into a model of Schumpeterian innovation. Firms face uncertainty about the optimal direction of innovation, so more innovations implies a higher expected value of the "best" innovation. The model accounts for two seemingly contradictory relationships reported in recent empirical studies—a positive relationship between competition and industry-level productivity growth, and an inverted-U relationship between competition and firm-level innovation. Notwithstanding the positive relationship between competition and growth, I find antitrust policy reduces industry-level growth.Citation
Bento, Pedro. 2014. "Competition as a Discovery Procedure: Schumpeter Meets Hayek in a Model of Innovation." American Economic Journal: Macroeconomics, 6 (3): 124-52. DOI: 10.1257/mac.6.3.124Additional Materials
JEL Classification
- B52 Current Heterodox Approaches: Institutional; Evolutionary
- D83 Search; Learning; Information and Knowledge; Communication; Belief
- G34 Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
- K21 Antitrust Law
- L11 Production, Pricing, and Market Structure; Size Distribution of Firms
- L12 Monopoly; Monopolization Strategies
- O31 Innovation and Invention: Processes and Incentives
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