Competitive pressure: the effects on investments in product and process innovation

I analyze the effects of competitive pressure on a firm's incentives to inv est in product and process innovations. I present a framework incorporating the selection and adaption effects of product market competition an effici ency and the Schumpeterian argument for monopoly power. The effects of comp etition on a firm's innovations depend on whether a firm is complacent, eag er, struggling, or faint, which is determined by the firm's efficiency leve l relative to that of its opponents. Finally, the following tradeoff is poi nted out a rise in competitive pressure cannot raise both product and proce ss innovations at the industry level.