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How can increasing competition aid innovation? How can increasing competition hinder innovation? Explain via a diagram...

How can increasing competition aid innovation? How can increasing competition hinder innovation? Explain via a diagram where rival firms may invest more money to increase the probability that their researchers find an innovation at an earlier date. How does the number of firms affect the desirability of this investment?

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Answer #1

How can increasing competition aid innovation

  • If the competition increase in market , organisations are driven towards differentiation of products
  • differentiation of products requires companies to innovate in R&D of company
  • Thus companies come up with new innovation to beat competition

How can increasing competition hinder innovation

  • Due to intense competition, companies tend to perform unethical practices to increase sales
  • Thus they focus on unscrupulous methods instead of innovation

How does the number of firms affect the desirability of this investment?

  • If many players in the market are driving innovation, then others are also driven to invest in R&D
  • Thus to beat competition, desirability of this investment increases
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