Competition and Innovation in Product Quality : Theory and Evidence from Turkey

This paper examines how degree of competition affects incentives to innovate in product quality in a symmetric Cournot oligopolistic model. We model product quality in a quality-ladder framework, and find an inverted-U shaped relationship between the number of firms in an industry and R&D efforts in innovation. We test this theoretical prediction using Turkish firm-level data from the Business Environment and Enterprise Performance Survey (BEEPS) and find strong support for it