This document summarizes and critiques a paper that examines the relationship between competition and investment in markets with technical progress. It makes three key points: 1) The model used in the paper does not adequately capture real-world policy aspects, as it defines "investment" as discounted costs rather than outcomes like coverage or technology quality. 2) The main finding that larger innovations lead to earlier investments is not that interesting from a policy perspective; the paper should instead focus on how competitiveness relates to socially optimal investment levels. 3) The paper makes too many assumptions that are difficult to justify, such as assuming profits are submodular, and would benefit from using a simpler model where investment directly improves welfare.

1. Discussion of : Jeanjean,
Technical Progress in the
Relationship between Competition
and Investment
Steffen Hoernig
FSR C&M Scientific Seminar
March 24th, 2017

2. Idea
• The paper attempts to show that maximum
investment in markets with strong technical
progress is achieved under low competitive
intensity
• This is captured in a model where the level of
product differentiation that maximizes
discounted investment cost shifts downwards
with a larger innovation (cost reduction)

3. Adequacy of the Model
• The research question is pertinent and important, but the
theory model employed does not seem capable of
capturing the policy-relevant aspects
• The “size of the investment” in the model is discounted
cost for a given innovation, thus higher discounted cost,
ceteris paribus, is a bad not a good
• The “amount of investment” in the policy debate relates to
outcomes such as coverage, bandwidth, FTTH vs FTTC etc
• The game is about timing, not investment cost: higher
investment costs are equivalent to earlier investment
• The main result of the paper is thus: “larger (more
profitable) innovations lead to earlier investments”
• What the paper should focus on is how socially optimal
investment relates to competitiveness; the amount of
investment cost as such is not interesting

4. Assumptions
• The paper has too many assumptions, many of
which are hard to justify
• Some are not even numbered but simply
mentioned in the text
• A decisive one is 𝑓 . > 𝑔 . : this does not
follow from (1); rather it is essentially the
assumption that profits 𝜋 are submodular
• Recommendation: try simpler model where
“amount of investment” means quality or
coverage, i.e. has a positive effect on welfare