Competition and growth: reconciling theory and evidence

From book description: Though competition occupies a prominent place in the history of economic thought, among economists today there is still a limited, and sometimes contradictory, understanding of its impact. In Competition and Growth, Philippe Aghion and Rachel Griffith offer the first serious attempt to provide a unified and coherent account of the effect competition policy and deregulated entry has on economic growth. The book takes the form of a dialogue between an applied theorist calling on "Schumpeterian growth" models and a microeconometrician employing new techniques to gauge competition and entry. In each chapter, theoretical models are systematically confronted with empirical data, which either invalidates the models or suggests changes in the modeling strategy. Aghion and Griffith note a fundamental divorce between theorists and empiricists who previously worked on these questions. On one hand, existing models in industrial organization or new growth economics all predict a negative effect of competition on innovation and growth: namely, that competition is bad for growth because it reduces the monopoly rents that reward successful innovators. On the other hand, common wisdom and recent empirical studies point to a positive effect of competition on productivity growth. To reconcile theory and evidence, the authors distinguish between pre- and post-innovation rents, and propose that innovation may be a way to escape competition, an idea that they confront with microeconomic data. The book's detailed analysis should aid scholars and policy makers in understanding how the benefits of tougher competition can be achieved while at the same time mitigating the negative effects competition and imitation may have on some sectors or industries

Competition and innovation: an inverted U relationship?

This paper investigates the relationship between product market competition and innovation. It uses the radical policy reforms in the UK as instruments for changes in product market competition, and finds a robust inverted-U relationship between competition and patenting. It then develops an endogenous growth model with step-by-step innovation that can deliver this inverted-U pattern. In this model, competition has an ambiguous effect on innovation. On the one hand, it discourages laggard firms from innovating, as it reduces their rents from catching up with the leaders in the same industry. On the other hand, it encourages neck-and-neck firms to innovate in order to escape competition with their rival. The inverted-U pattern results from the interplay between these two effects, together with the effect of competition on the equilibrium industry structure. The model generates two additional predictions: on the relationship between competition and the average technological distance between leaders and followers across industries; and on the relationship between the distance of an industry to its technological frontier and the steepness of the inverted-U. Both predictions are supported by the data

Competition and innovation: an inverted U relationship

This paper investigates the relationship between product market competition (PMC) and innovation. A Schumpeterian growth model is developed in which firms innovate ‘step-by-step’, and where both technological leaders and their followers engage in R&D activities. In this model, competition may increase the incremental profit from innovating; on the other hand, competition may also reduce innovation incentives for laggards. This model generates four main predictions which we test empirically. First, the relationship between product market competition (PMC) and innovation is an inverted U-shape: the escape competition effect dominates for low initial levels of competition, whereas the Schumpeterian effect dominates at higher levels of competition. Second, the equilibrium degree of technological ‘neck-and-neckness’ among firms should decrease with PMC. Third, the higher the average degree of ‘neck-and-neckness’ in an industry, the steeper the inverted-U relationship between PMC and innovation in that industry. Fourth, firms may innovate more if subject to higher debt-pressure, especially at lower levels of PMC. We confront these four predictions with a new panel data set on UK firms’ patenting activity at the US patenting office. The inverted U relationship, the neck and neck, and the debt pressure predictions are found to accord well with observed behavior in the data

The U-Shaped relationship between vertical integration and competition: theory and evidence

This paper considers how competition can affect aggregate innovative activity through its effects on firms' decision whether or not to vertically integrate. A moderate increase in competition enhances innovation incentives, too much competition discourages innovative effort. These effects generates an inverted-U relationship between competition and innovation and between competition and the incentive to vertically integrate. Preliminary evidence finds that there is a non-linear relationship between competition and the propensity of firms to vertically integrate. These results seem to be more consistent with the Property Right Theory (PRT) of vertical integration than with the Transaction Cost Economics (TCE) approach

The prediction of low quality boiling voids

Slug flow theory is used to predict the density in heated channels of various shapes. In order to make this calculation possible, measurements are made of the bubble rise velocity in annuli, tube bundles, and channels. It is found that the large dimension is most important in channels and the shroud dimension most important in annuli and tube bundles. It is also found that no rotationally symmetrical bubble shapes are obtained in annuli and tube bundles. Finally, a comparison is made between the theory, which contains no free constants, and the experiments. The comparison is good. The results, as presented, apply only to vertical heated channels of various shapes with up flow in the low quality region.Office of Naval Research DS

Scaffolds and Generalized Integral Galois Module Structure

Let $L/K$ be a finite, totally ramified $p$-extension of complete local fields with residue fields of characteristic $p > 0$, and let $A$ be a $K$-algebra acting on $L$. We define the concept of an $A$-scaffold on $L$, thereby extending and refining the notion of a Galois scaffold considered in several previous papers, where $L/K$ was Galois and $A=K[G]$ for $G=\mathrm{Gal}(L/K)$. When a suitable $A$-scaffold exists, we show how to answer questions generalizing those of classical integral Galois module theory. We give a necessary and sufficient condition, involving only numerical parameters, for a given fractional ideal to be free over its associated order in $A$. We also show how to determine the number of generators required when it is not free, along with the embedding dimension of the associated order. In the Galois case, the numerical parameters are the ramification breaks associated with $L/K$. We apply these results to biquadratic Galois extensions in characteristic 2, and to totally and weakly ramified Galois $p$-extensions in characteristic $p$. We also apply our results to the non-classical situation where $L/K$ is a finite primitive purely inseparable extension of arbitrary exponent that is acted on, via a higher derivation (but in many different ways), by the divided power $K$-Hopf algebra.Comment: Further minor corrections and improvements to exposition. Reference [BE] updated. To appear in Ann. Inst. Fourier, Grenobl

Bubble growth rates in boiling

The conditions determining the growth rate of a bubble on a surface in boiling are considered and a mathematical model framed in the light of these conditions. The growth rate is then calculated for bubbles growing under a range of conditions of pressure, wall superheat and bulk fluid temperature. The average growth rate of a bubble is found to decrease with increasing maximum size' and to decrease with increasing pressure. At high pressure the maximum size of the bubble is found to be independent of pressure and primarily a function of the thickness of the superheated layer near the surface. The calculated bubble growth velocities are then used to correlate some burnout data for a variety of fluids under a range of pressures in pool boiling. Bubble growth pictures are presented for water at atmospheric pressure under a variety of conditions.Office of Naval Research Contract D.I.C. Project National Science Foundation Gran

Entry and productivity growth: evidence from microlevel panel data

How does entry affect productivity growth of incumbents? In this paper we exploit policy reforms in the United Kingdom that changed entry conditions by opening up the U.K. economy during the 1980s and panel data on British establishments to shed light on this question. We show that more entry, measured by a higher share of industry employment in foreign firms, has led to faster total factor productivity growth of domestic incumbent firms and thus to faster aggregate productivity growth