Competition and innovation behaviour

This paper attempts to shed light on the complex relationship between innovation and competition. Traditional measures of product market competition using industry statistics are often challenged and found wanting. Using the Statistics Canada 1999 Survey of Innovation, this paper develops new measures of competition by arguing that firms’ perceptions about their competitive environment are important for innovation and are better measures of firm-specific competition. It shows that the relationship can be positive or negative, depending on specific competition perception and specific innovation activity. In addition, it shows that firms tend to bundle process innovation with product innovation, implying that the economic value of process innovation is likely embodied in product innovation.