ANALYSE THE IMPACT OF COMPETITION ON INVENTION

In this 21st century, the world is rapidly progressing, industrializing and globalizing.
This rapid growth in industries is because of the innovation.The relationship between innovation and competition is of great importance to economists and managers.

Role of innovation in their firm and the competition between the firm is of great significance.But the big question is-Does more competition results in a higher focus of innovation? The answer varies according to the situation, some cases have led to the identification of positive relationahip, some have led to negative relationship and some have led to inverse U-shaped relationship.Before analysing the impact of competition on invention, let us first try to understand the meaning of invention and competition.

Invention-Invention is a multi-stage process that has led to develop new products by advancing the ideas that can lead a life to live with more ease.
Competition-Competiton is a process to compete the opponent via a certain race .

Invention has developed from costly R&D investments and move technology one step up.
Some studies has showed that Competition is inversely measured by the ex-post rents that runs at the same technological level. Impact of competition on invention has also been studied theoretically and empirically. Two points has to be taken in consideration, rise is R&D investment.
First, increased competition has led to a significant. Second, increased competition has also decrease R&D investments of left behind companies that are lagging behind.Thirdly, we find that increased competition affects industry composition by reducing the fraction of sectors where firms are neck-and-neck.
All these models are based on step-by-step model.

Limitations:-
Empirical study of competition on invention has two limitations.First,it is the problem of endogeneity,the degree of invention is based on competition.Finding exogenous variation in the field of invention in the field in order to identify the casual effect of competition on innovation is difficult.Second,relationship between competition and invention is bounded by moderate factors.

Effect Of Competition On Invention:-  
Endogenous growth models with step-by-step innovation has predicated that increased competition should have three types of effects on invention.

• It should foster innovation in neck-to-neck sector where firms operate at the same technological level. In this, due to high competition in the market it leads to incremental profit in the field of invention.It reduces pre-innovation rents.It is also called as the "escape-competition effect".
• Competition should have a negative "schumpetriam effect" on laggard firms' invention incentives which reduces the post-invention rent of leggards firm and their incentiv too catch up with the leader.This implies "the composite effect".
• Competition should have a positive  "anticipated escape-competition effect or laggards' firm invention incentives in unleaded sectors.

      The above effects are well described below:-

• Negative-Linear Relationship:- Theoretical and Empirical studies have shown that  there exists a negative-linear relationship between competition and invention.This theory is called Schumpetrian Effect. Joseph Schumpeter has introduced creative destruction after studying the idea of Karl Marx.He showed the impact of desruption process of transformation that accompanies innovation. The mechanism of the Schumpetrian showed that the it takes less profitable to invent when the competition is very high as the incentive for invention depends on the amount of rent a firm can collect for their invention.The rent is dependent on time until the next successful invention by a competiting firm, which decreases with competition because firms are more likely to invent to keep up with competition. This leads to the relationship stating that a market with perfect competition decreases the incentive to innovate and vice-versa.Regarding the effect of the present market structure on R&D,they concluded that if a monopolist dominates the market, this will lead to more R&D than a competitive market, primarily due to the decrease competition in the post invention market. Further more they can conclude that competition in R&D leads to more research. being performed then when in a monopoly, but may lead to excessive R&D expenditure relative to the social optimum. Industry concentration is not evidential of lack of effective competition and that when the concentration is small, industry levels of R&D increases with concentration. Aghion and Howitt constructs endogenous growth framework to creative destruction and they are identified a  negative correlation between competition and R&D. The model is based on the notion that if innovation is given by the expectation of higher profit it will follow that any increasing competition will reduce inovation the concept of Creative destruction explain how current R&D is negatively correlated with the expected amount of R&D in the next period because the prospect of more future research discourages current research by threatening to destroy the rent created by current research.
• Positive-linear Relationship:-It is opposite of the Schumpetrian Effect.It states that if the competition increases then invention too will increase.Fellner and Arrow have proved that firms most from  invention when the competition is strong. Scientist have argued that firms are required to invent during high competition in order to survive.Aghion explained the possibility for this relationship by using the term escape competition effect which is built on the step-by-step invention model of Jaguar, Harris howvit.The model describes how competition may increase incremental profit from invention. With stronger the competition risk of being matched by and overtaken competitors will be costlier for technically develop firms. Consequently,these firms will increase their R&D expenditure to outpace the competition. Hypothesis have been shown that states that increase in competitive rivalry decrease innovativeness.Most of the researchers are in the favour of positive-linear relationship between competition and invention.
• Inverted-U Relationship:- When firm compares the expected pre-innovation and post-invention invention rents,and simultaneously try to escape competition, you get behaviours that produce a non-linear relationship. However, you get behaviours that produce a non-linear relationship.However, if competition is fierce, the negative Schumpeterian effect of competition on R&D dominates the positive escape competition effect. When competition is low, a large equilibrium fraction of sectors involves neck-and-neck competing incumbents , so that overall escape competition effect is more likely to dominate the Schumpeterian effect.The balance between the two effects changes with the level of competition,generating the inverted-U relationship between competition and R&D. Aghion was the first scientist to have to develop the model which predicted an inverted-U relationship between competition and invention by expanding on his previous work. The study measures invention by a citation - weighted patent count , and the average number of patents taken out by firms in an industry is used.It is the combination of the relationship between the earlier and endogenous hypothesis.

From the above explanation , it is clear that there exists three relationship between competition and invention, that is , negative-linear relationship, positive-linear relationship and inverted-U relationship.We can conclude that if there is an increase in competition , then there may be invention but the extent to which the invention will be invented is decrease.