Competition, Innovation and the Use of Innovations

I examine the effect of competition on the production and use of innovations using evidence from a natural experiment of policy reform, the introduction of cartel legislation in the U.K. in the late 1950's. I compare manufacturing industries which had been collusive and were therefore affected by the policy with those that had been competitive and were not affected. The intensification of competition following the abolition of cartels caused a short-run decrease in innovations produced, but had no significant effect in the long run. In contrast, innovations used increased both in the short run and in the long run.