Technical Progress Reduces the Degree of Competition That Maximizes Investment in Innovation

Abstract

The relationship between competition and investment is generally characterized by an inverted-U relationship. The position of these curves and, in particular their maximum, i.e, the degree of competition that maximizes investment, depends on the degree of technical progress that characterizes each industry. Industries experiencing a high degree of technical progress, as information technologies, maximize their investments in innovation for lower degrees of competition than other industries. Sectoral and competition authorities should take this into account for regulation of competition. Information technologies should not be regulated as brick and mortar industries.