Aghion and Howitt (2006) said that "so far, competition policy in Europe has emphasized competition among incumbent firms but paid insufficient attention to entry. Entry, as well as exit and turnover of firms, are more important in the United States than in Europe. For example, 50% of new pharmaceutical products are introduced by firms that are less than 10 years old in the United States, versus only 10% in Europe. Similarly, 12% of the largest US firms by market capitalization at the end of the 1990s had been founded less than 20 years before, against only 4% in Europe, and the difference between US and Europe turnover rates is much bigger if one considers the top 500 firms. "
I think the reason to be that the specialization of cities in specific industries makes it difficult for industries in Germany to generate cross-breed technologies.
They also said that "like the product variety model, the Schumpeterian growth paradigm embodies the “appropriability” effect, by which stricter competition policy may reduce growth by reducing the post-innovation rents that reward a successful innovator. However, the Schumpeterian paradigm naturally generates a counteracting “escape competition” effect. That is, in duopoly industries where the two firms have similar technological capabilities, although more intense competition lowers the post-innovation rents of an innovating firm, nevertheless, it may lower the rents of a non-innovating firm by even more. In such an industry, more competition thus raises the incremental profits that a firm earns by innovating; in effect, innovation is a means by which the firm can break away from the constraints of intense competition with a close technological rival. Less intense competition, on the other hand, would make it easier for the firm to earn profits without having to incur the expense of innovating. Thus more intense competition in “neck-and-neck” industries can lead to higher innovation rates and hence faster productivity growth. "
They also said that "like the product variety model, the Schumpeterian growth paradigm embodies the “appropriability” effect, by which stricter competition policy may reduce growth by reducing the post-innovation rents that reward a successful innovator. However, the Schumpeterian paradigm naturally generates a counteracting “escape competition” effect. That is, in duopoly industries where the two firms have similar technological capabilities, although more intense competition lowers the post-innovation rents of an innovating firm, nevertheless, it may lower the rents of a non-innovating firm by even more. In such an industry, more competition thus raises the incremental profits that a firm earns by innovating; in effect, innovation is a means by which the firm can break away from the constraints of intense competition with a close technological rival. Less intense competition, on the other hand, would make it easier for the firm to earn profits without having to incur the expense of innovating. Thus more intense competition in “neck-and-neck” industries can lead to higher innovation rates and hence faster productivity growth. "
In Germany, there is an alternative way for SMEs to avoid competition from rivals to innovations: The strategy to specialize in a specific and non-popular industry allows a local SME to find a niche in the global market. A unit bank may find its way to survive by specializing in serving SMEs in its municipality only through relationship lending.
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