Competition Effects of Innovation under Uncertain Times

Dear Colleagues,

Competition has a double-edged effect: in a relatively financially secured environment, an enhanced level of competition can spur innovation propensity, whereas at persistently uncertain times, such as COVID-19 (see, for instance, Borio, 2020), greater competition can dampen innovation proclivity. Uncertainty has an embedded cost in the form of unpredictability of returns from an investment, and hence, any investment in an innovative venture will be treated with extreme caution. Unfortunately, we are living in a world of persistent uncertainty—before the end of one crisis, another crops up, be it in the form of an endogenous event such as financial crisis or an exogeneous one, such as COVID-19. In this context, corporations need to be resilient; they may engage in strategic innovation to counter competition effects. Figure 1 below presents the interactive effects of competition on innovation under uncertainty, when both firm and industry level factors respond to policy interventions. Conventional theoretical and empirical literature (such as Aghion et al. (2005); Aghion et al. (2013); Hasmi (2013), Cornaggia et al. (2015)) show that competition and innovation may share varied relationships—inverted U-shaped, positive, negative, and even an insignificant one. However, under persistence uncertainty, the observed relationship may define one relationship better than the other.

A number of factors may govern competition and innovation relationships, such as the role of institutional quality (Aghion et al. 2013), the size of the corporations (Beck et al., 2008), which will be central in characterizing the shock absorption and survival tenacity of corporations, and whether corporations are local (Tian and Han, 2019).

This Special Issue invites both theoretical and empirical work, in any area of economics and finance, to provide robust evidence on a particular direction and shape of the relationship between competition and innovation under uncertainty. Empirical papers need to draw on an existing theory or build one to design their empirical strategies. In particular, we are looking for contributions which focus on but are not limited to the competition and innovation relationship in the following aspects:

• The role of uncertainty in the competition–innovation relationship in the financial sector;
• Industry innovation and banking competition;
• Firm/Industry innovation and competition;
• Applications to Greentech and Fintech.

Both theoretical and empirical (using either secondary and/or primary data) work is welcome.

Aghion, P., Bloom, N., Blundell, R., Griffith, R., & Howitt, P. (2005). Competition and innovation: An inverted-U relationship. The Quarterly Journal of Economics, 120(2), 701–728.

Aghion, P., Van Reenen, J., & Zingales, L. (2013). Innovation and institutional ownership. American Economic Review, 103(1), 277–304.

Beck, T., Demirguc-Kunt, A., & Maksimovic, V. (2008). Financing patterns around the world: Are small firms different? Journal of Financial Economics, 89(3), 467–487

Benfratello, L., Schiantarelli, F., & Sembenelli, A. (2008). Banks and innovation: Microeconometric evidence on Italian firms. Journal of Financial Economics, 90(2), 197–217.

Borio, C. (2020). The Prudential Response to the COVID-19 Crisis. Bank of International Settlements.

Cornaggia, J., Mao, Y., Tian, X., & Wolfe, B. (2015). Does banking competition affect innovation? Journal of Financial Economics, 115(1), 189–209.

Hashmi, A. R., 2013, Competition and innovation: the inverted-u relationship revisited, Review of Economics and Statistics, 95, 1653–1668

Tian, L., & Han, L. (2019). How local is local? Evidence from bank competition and corporate innovation in U.S. Review of Quantitative Finance and Accounting, 52(1), 289–324.

Prof. Dr. Tapas Mishra
Dr. Mamata Parhi
Guest Editors

Manuscript Submission Information

Manuscripts should be submitted online at www.mdpi.com by registering and logging in to this website. Once you are registered, click here to go to the submission form. Manuscripts can be submitted until the deadline. All submissions that pass pre-check are peer-reviewed. Accepted papers will be published continuously in the journal (as soon as accepted) and will be listed together on the special issue website. Research articles, review articles as well as short communications are invited. For planned papers, a title and short abstract (about 100 words) can be sent to the Editorial Office for announcement on this website.

Submitted manuscripts should not have been published previously, nor be under consideration for publication elsewhere (except conference proceedings papers). All manuscripts are thoroughly refereed through a single-blind peer-review process. A guide for authors and other relevant information for submission of manuscripts is available on the Instructions for Authors page. Economies is an international peer-reviewed open access monthly journal published by MDPI.

Please visit the Instructions for Authors page before submitting a manuscript. The Article Processing Charge (APC) for publication in this open access journal is 1800 CHF (Swiss Francs). Submitted papers should be well formatted and use good English. Authors may use MDPI's English editing service prior to publication or during author revisions.