Product market competition policy and technological performance

Stricter competition policy reduces expected payoffs before and after innovation, but reduces pre-innovation payoffs relatively more than post-innovation payoffs, and therefore increases the equilibrium level of R&D activity: tough product-market competition policy stimulates innovation. There is an inverted-U relationship between competition policy and expected welfare. The model also permits analysis of the effect of R&D spillovers and of alternative R&D cooperation regimes on expected welfare, on R&D efforts, and on the expected time to discovery of a cost-saving innovation.