| Abstract: |
We show that, in the case when innovations are for sale, increased product
market competition, captured by reduced product market profits, can increase
the incentives for innovations. The reason is that the incentive to innovate
depends on the acquisition price which, in turn, might increase despite firms
in the market making lower profits. We also show that stricter, but not too
strict, merger and cartel policies tend to increase the incentive for
innovations for sale by ensuring the bidding competition for the innovation
and by increasing the relative profitability of being the most efficient firm
in the industry. Moreover, it is shown that increased intensity of competition
can increase the relative profitability of innovation for sale, relative to
innovation for entry. |