Competition and Product Cycles with Non-Diversifiable Risk
Abstract
This paper analyzes the growth effects of competition in a product-cycle model where R&D firms both innovate and imitate and households are subject to non-diversifiable risk. I prove that product market competition promotes growth when the initial level of competition is high enough. In contrast to the earlier product-cycle models with diversifiable risk, I show also the following. Some positive profits are necessary for technological change. The larger the proportion of industries subject to price competition, the slower economic growth.