Intensity of competition and the incentive to innovate

The effects of intensity of product market competition on R&D incentives ar e analysed in a model capturing the strategic interactions between firms wi th different cost levels. First, four axioms are proposed that a measure of intensity of competition should satisfy. Then the effects of intensity of competition on the value of the innovation are analysed. And it is shown th at the axioms imply the existence of a non-monotone relation between intens ity of competition and the value of an innovation. (C) 2001 Elsevier Scienc e B.V. All rights reserved.