Jean-François Sattin

Does the relationship between innovation and competition vary across industries? Comparison of public and private research enterprises

ABSTRACT The relationship between innovation and competition remains unclear despite the substantial number of theoretical and empirical papers on this topic. Firms in different industries differ substantially in terms of the innovation strategy they adopt and the technological performance they achieve: sectors provide firms with a set of opportunities and constraints shaping the way they organize their innovation activities. By introducing, national factors, knowledge, capital, firm’s external linkage, sectoral characteristics and R&D public policies, our econometric study confirms that the relationship between competition and innovation takes an inverted U-shape due to the simultaneous influence of two opposing forces (‘Schumpeterian effect’ and the ‘escape competition effect’). However, we show further that this general result does not hold if we distinguish between public and private sector industries: we find an inverted-U shaped relationship between innovation and competition in the public sector, but, due to the high level of competition among private firms, not in the private sector. Moreover, we show that the public research sector is ‘innovative’ while the private sector seems to be a ‘catch-up’ sector. It suggests the key theoretical assumption that public manufacturing industries are technologically neck-and-neck with their counterparts in the private sector.