Cournot competition and “green” innovation: An inverted-U relationship

- We analyse the relationship between competition and “green” innovation.
- We examine an oligopoly with pollution where firms compete and invest in “green” R&D.
- We analyse the optimal emission tax set by a committed regulator.
- An inverted-U relationship exists between R&D and the number of firms.

We examine the relationship between competition and innovation in an industry where production is polluting and R&D has the aim to reduce emissions (“green” innovation). We present an n-firm oligopoly where firms compete in quantities and decide their investment in “green” R&D. We analyse the case where the emission tax is set endogenously by a committed regulator and uncover an inverted-U relationship between innovation and competition that is mainly driven by the presence of R&D spillovers.