This presentation by the OECD Secretariat was made during the discussion “The Relationship between Competition and Innovation” held at the 140th meeting of the OECD Competition Committee on 14 June 2023. More papers and presentations on the topic can be found out at oe.cd/rbci.

1. Competition and innovation:
a theoretical perspective
Background note by the Secretariat

2. 1. Introduction
2. Types of innovation and the relationship with
competition
3. Drivers of innovation
4. Future work
2
Outline of the BN

3.  While there is a long-standing view that competition drives
innovation and that innovation, in turn, drives higher welfare and
economic growth, there is no theoretical consensus on the precise
relationship between these variables.
 Need to focus on the fundamental relationship.
 Is competition a driver of innovation? Is innovation a driver of
competition? How does competition interact with the main
drivers of innovation?
 What is the role of competition policy and enforcement to foster
innovation (Dec.)
3
Background

4. The complex interaction has led to theoretical and empirical studies
finding relationships in different directions, preventing a consensus
between scholars on their mutual impact.
These different outcomes are also affected by differences in the used
definition of competition and innovation as well as measurement
challenges.
4
Competition and Innovation: latest
developments

5. 5
Competition and Innovation: latest
developments
The classic discussion: Arrow/Schumpeter
debate + Aghion et al.
The new developments: Shapiro’s contestability,
appropriability and synergies approach.
Dynamic capabilities and dynamic competition
theories.

6. 6
(Other) drivers of innovation
Size of the firm
Business models
– experience
and maturity
Economies of
scale and
network effects
Access to
finance
Regulation and
government
policies
IPRs Collaboration

7. 1. The complexity of the interaction between competition
and innovation has led to a variety of results, making the
discussion far from reaching consensus.
2. The consideration of a dynamic perspective in the
analysis is fundamental.
3. It has been recognised that the effect competition has on
innovation depends on whether the market is
contestable and whether the innovation is appropriable.
7
Conclusions

8. 4. Innovation can also have an impact on dynamics and
structure of markets.
5. There are many factors that drive innovation, such as
firm-specific characteristics, differences in business
models, the role of financing agents, geographical
considerations, network effects, among others.
6. Competition policy has a key role to play in driving
innovation, including facilitating other drivers to
generate incentives to innovate and allowing innovations
to spread across markets.
8
Conclusions

9. Need for competition authorities to consider innovation is
increasing.
There have been different approaches to innovation under
competition law enforcement.
Future background note that focuses on the implications
of the relationship between competition and innovation in
competition enforcement.
9
Future work