SNB paper identifies creative destruction effect in competitive markets


A Swiss National Bank paper published on Thursday finds evidence that by providing a wider set of differentiated goods, new market entrants promote greater competition.

Raphael Auer and Philip Sauré, the paper's authors, develop a general equilibrium model of vertical innovation to analyse how multiple firms compete and how firms' innovation decisions determine the density of quality supply, equilibrium markups and profits.

The authors assume growth arises through continued quality innovation by

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