Competition and firms’ innovation outcomes

Innovation is important because it helps businesses become more productive. But businesses need the right amount of competition to encourage new ideas.

This note shows that Australian businesses with more competitors are more likely to:

• develop new products
• improve how they work
• introduce new management practices
• try new ways of marketing.

Using survey data and a new measure of local competition, we find that innovation increases as businesses move from having no competitors to having more competition.

The largest increase occurs when competition rises from low to moderate levels. Businesses with 5 or more competitors are around 10 to 15 per cent more likely to innovate than businesses with no competitors.