Leniency Programmes, Competition, and Innovation

This thesis addresses two different topics in the area of competition policy and innovation. In Chapters 2 and 3, I analyse the efficiency of both national and EU leniency programmes in detecting and destabilising cartels. I use industry-level panel data to track the changes in competition intensity as leniency programmes are implemented. The success of the leniency programme is captured by an increase in competition intensity (as measured by a drop in price-cost margins). I then conduct a novel difference-in-differences DD, and a difference-in-difference-in-differences DDD, where I divide the industries according to their likeliness to form a cartel as well as their likeliness to be susceptible to cross-borders cartels. Results suggest that leniency programmes are effective both at the national and the EU level. As the results in Chapters 2 and 3 suggest that leniency programmes are successful in increasing competition intensity, I propose leniency programme implementation as a novel instrument to study the causal impact of competition intensity on innovation in Chapters 4 and 5. Specifically, I use the exogenous variation in competition intensity resulting from leniency programmes implementation to assess the impact of competition intensity on innovation. I provide two different contributions based on firm-level data in developing countries and industry-level data in developed countries. I consider both innovation inputs (R&D expenditures) and outputs (process and product innovation). The Instrumental Variable estimates of competition intensity on innovation reveal two opposite effects: the “Schumpeterian effect” where competition is associated with lower innovation activity and the “escape-competition effect” where competition is associated with increased innovation activity.