“Strategic Rivalry and Innovation”

Alminas Zaldokas, The Hong Kong University of Science and Technology

Despite extensive theoretical investigations on the link between competition and innovation, the empirical evidence is inconclusive. The identification based on trade shocks suffers from the possibility that any increase in innovation could have come from the technological spillovers from new (foreign) entrants rather than an increase in product market rivalry. In a cross-country study, we study the shock to the competition between incumbent players. Exploiting a difference-in-difference strategy based on the staggered passage of national leniency laws over 1990-2012, we show that these laws which increase the costs of collusion lead to higher R&D expenditures at a firm level and to more patents at a country level.