BIGGER IS BETTER: MARKET SIZE, DEMAND ELASTICITY, AND INNOVATION

• 成果类型: Article
• 署名作者: Desmet, Klaus; Parente, Stephen L.
• 署名单位: University of Illinois System; University of Illinois Urbana-Champaign
• 刊物名称: INTERNATIONAL ECONOMIC REVIEW
• ISSN/ISSBN: 0020-6598
• DOI: 10.1111/j.1468-2354.2010.00581.x
• 发表日期: 2010
• 页码: 319-333
• 关键词: monopolistic competition; productivity growth; labor productivity; TRADE; industry; QUALITY; models

摘要

This article proposes a novel mechanism whereby larger markets increase competition and facilitate process innovation. Larger markets, in the sense of more people or more open trade, support a larger variety of goods, resulting in a more crowded product space. This raises the price elasticity of demand and lowers markups. Firms, therefore, become larger to break even. This facilitates process innovation, as larger firms can amortize R&D costs over more goods. We demonstrate this mechanism in a standard model of process and product innovation. In doing so, we question some important results in the new trade and endogenous growth literatures.