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Competition and Growth in an Endogenous Growth Model with Expanding Product Variety without Scale Effects

Bianco, Dominique (2007): Competition and Growth in an Endogenous Growth Model with Expanding Product Variety without Scale Effects.

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Abstract

The aim of this paper is to analyse the relationship between competition and growth in an endogenous growth model with expanding product variety without scale effect. In order to do this, we develop an extension of the Bucci (2005) model in which we eliminate the scale effects. We find that the relationship between competition and growth is always inverted U shaped. We explain this result by the composition of two effects on growth : resource allocation and profit incentive effects. For low values of product market competition, an increase of competition has an positive effect on growth. For large values of competition, we have a negative relationship between competition and growth.

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