Edited by Paul Cook, Raul Fabella and Cassey Lee
Chapter 15: Domestic Competition and Technological and Trade Competitiveness
* Yuichiro Uchida and Paul Cook INTRODUCTION In recent years both theoretical and empirical research has emphasized the productive and dynamic eﬃciency gains from competition (Baily and Gersbach, 1995; Nickell, 1996). Productive or technical eﬃciency is linked to productivity-enhancing innovations, which contribute to greater dynamic eﬃciency in the longer run. The role of competition in improving enterprise eﬃciency emanates through the incentives provided by the disciplining eﬀect of market competition. This eﬀect induces enterprises to introduce cost-reducing improvements in production and speed up innovation and technological progress. Competition also works through a process of selection, in which weaker enterprises give way or are replaced by more eﬃcient ones, although the strength of competition between enterprises is not just a function of the behaviour between enterprises but also of the external environment in which they compete, the state of infrastructure, legal framework and the eﬀectiveness of the ﬁnancial system (Carlin and Seabright, 2001). In this dynamic setting, competition from new entrants in the market that experiment with new technologies become the driving force for innovation and in turn market incumbents are forced to innovate for their survival (Dasgupta and Stiglitz, 1980). It is argued that in industries characterized by rapid technological change, as, for example, in the telecommunications sector, competition for the market through standard-setting innovations is likely to be more signiﬁcant than cost-reducing static eﬃciency (Ahn, 2002). The examination of the empirical link between competition and dynamic eﬃciency has tended...
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