DP2816 Price Competition, Innovation and Profitability: Theory and UK Evidence

Author(s): George Symeonidis
Publication Date: May 2001
Keyword(s): Cartels, Innovation, Manufacturing, Market Structure, Price Competition, Profitability, UK
JEL(s): L11, L13, O31
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=2816

This Paper examines the effect of price competition on innovation, market structure and profitability in R&D-intensive industries. The theoretical predictions are tested using UK data on the evolution of competition, concentration, innovation counts and profitability over 1952-77. The econometric results suggest that the introduction of restrictive practices legislation in the UK had no significant effect on the number of innovations commercialized in previously cartelized R&D-intensive manufacturing industries, while it caused a significant rise in concentration in these industries. In the short run profitability decreased, but in the long run it was restored through the rise in concentration.