Quality competition, market structure and endogenous growth

Tong, Jian (1999) Quality competition, market structure and endogenous growth. EI (25). Suntory and Toyota International Centres for Economics and Related Disciplines, London, UK.

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Abstract

This paper studies the role of quality competition in endogenous growth and institutional factors which can affect growth through affecting quality competition. The R&D-based growth literature as it stands attributes the incentives for innovations to monopolist market structure, and regards the driving force of growth being 'the rent-pull'. This paper presents a 'competition-push' theory of growth by considering an environment where firms can coexist and compete in quality within the same markets. Quality competition takes the form of vertical product differentiation or cost-reducing process innovation, which requires endogenous fixed R&D costs. Due to the nonrival and excludable features of 'quality' and consequent nonconvexity, market concentration naturally occurs in a manner such that R&D intensity and market structure are determined simultaneously in equilibrium. The main conclusions are that quality competition suffices to provide incentives for innovation at industry level, and through knowledge spillovers it also drives aggregate technical progress, that institutional restriction on free entry into quality competition may be desirable to some degree, but monopolization is usually not optimal, that credit constraint which limits quality competition is detrimental to growth.

Item Type:	Monograph (Discussion Paper)
Official URL:	http://sticerd.lse.ac.uk
Additional Information:	© 1999 Jian Tong
Divisions:	STICERD
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HD Industries. Land use. Labor
JEL classification:	J - Labor and Demographic Economics > J1 - Demographic Economics > J13 - Fertility; Family Planning; Child Care; Children; Youth J - Labor and Demographic Economics > J1 - Demographic Economics > J16 - Economics of Gender; Non-labor Discrimination O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development > O31 - Innovation and Invention: Processes and Incentives O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O41 - One, Two, and Multisector Growth Models
Date Deposited:	09 Jul 2008 08:03
Last Modified:	13 Sep 2024 19:41
URI:	http://eprints.lse.ac.uk/id/eprint/6748

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