Peer-reviewed article

Green innovation downturn: The role of imperfect competition

Published on 01 June 2023

Article publication Green innovation downturn: The role of imperfect competition by René Aïd, Mohamed Bahlali et Anna Creti in the review Energy Economics.

Volume 123, July 2023, 106754

We use strategic interactions to analyze the role of China’s state-subsidized production expansion in the recent downturn in solar photovoltaics innovation. To that end, we develop a dynamic game model in which solar panel manufacturers compete in price and invest in cost-reducing research. The resulting Nash equilibrium displays an inverted U relationship between a manufacturer’s market share and its research effort. In the case where a local firm is competing against a foreign state-subsidized one, we obtain analytical and numerical results that are consistent with three stylized facts: (i) the foreign manufacturer progressively expands to become the dominant player, (ii) competition and innovation bring marginal costs down to zero, and (iii) each manufacturer’s research effort follows an increasing-then-decreasing curve. At a policy level, our model shows that national technology-push policies, such as R&D subsidies, can affect foreign innovation by changing the structure of global competition.

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