Schumpeterian competition in experimental markets

R. Mark Isaac, Stanley S. Reynolds

Research output: Contribution to journalArticle

26 Scopus citations

Abstract

We report on a series of laboratory experiments that capture key elements of research and development (R&D) rivalry. The experimental environment has a small number of sellers who compete in terms of pricing and production decisions and in terms of cost-reducing R&D. Rewards for innovation depend on the profitability of product market competition. The experiments capture a kind of dynamic, Schumpeterian competition. There is a sharp contrast in experimental results between monopolies and four-seller (competitive) markets. Aggregate R&D is higher under competition than under monopoly and prices follow marginal cost reductions much more quickly under competition than under monopoly. The paper examines market performance in the experiments and the sources of market performance problems.

Original languageEnglish (US)
Pages (from-to)59-100
Number of pages42
JournalJournal of Economic Behavior and Organization
Volume17
Issue number1
DOIs
StatePublished - Jan 1992

ASJC Scopus subject areas

  • Economics and Econometrics
  • Organizational Behavior and Human Resource Management

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