Imperfect competition, concentration and growth with firm-specific R & D

Abstract

The paper presents a model of growth based on innovation. High-tech firms cover the fixed cost of R and D out of operating profits and sell output in a market with imperfect competition. Innovation builds on and contributes to firm-specific knowledge. Moreover, there are spillovers among firms. Growth is higher in a more concentrated market provided that market power of firms is not too high. Economic integration between symmetric countries fosters growth, as profit margins decrease with market shares. Integration of production lines and research efforts by mergers or horizontal integration is conducive to growth.