The International Handbook of Competition

The International Handbook of Competition

Elgar original reference

Edited by Manfred Neumann and Jürgen Weigand

This indispensable Handbook examines both economic and legal aspects of competition policy and industrial organization. It provides a scholarly review of the state of the art regarding economic theory, empirical evidence and standards of legal evaluation. The book aims primarily at furthering our understanding of the interplay between economic reasoning and legal expertise by concentrating on the fundamental issues and principles underlying competition policy.

Chapter 3: Small Firms, Innovation and Competition

David B. Audretsch

Subjects: economics and finance, competition policy, industrial organisation


89 flourish or be pursued within the context of incumbent firms are sometimes pursued by the start-up of a new firm. The start-up of a new firm can represent the attempt to commercialize an untried idea. As Jovanovic (1982) argues in his model of noisy selection, new firms do not know the viability of their enterprises but only discover this subsequent to start-up, struggling in the market and striving for performance. Start-ups, learning from market experience that their product is viable, grow and ultimately survive; those learning that their products are not viable stagnate and exit. Thus an important source of market competition in this dynamic context comes from the new products and processes being introduced in the market by new firms. The dynamic contribution to competition emanating from new and small firms suggests that policies mitigating barriers to start-up of new firms as well as barriers to entry by incumbent firms should be an equally important component of competition policies. By encouraging the entry of new firms, policy can generate new competition in the form of a greater number of firms experimenting with a greater variety of approaches. Increased variety generates greater competition which, through a process of selection, results in many firms exiting and fewer surviving by providing the best novel approaches (Cohen and Klepper, 1992; Audretsch and Thurik, 2001). Policymakers have recently recognized the potential contribution to dynamic competition that new firms can play. This has led to a shift in emphasis towards reducing barriers to start-up....

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