Cooperation bias in regional policy: Is competition neglected?

New study analyzes the role of competition in regional innovation policies, highlighting a cooperation bias. 

Christian Reiner, lecturer and senior researcher at Lauder Business School, published a paper in the prestigious, international and peer-reviewed journal “Annals of Regional Science”. He co-authored the paper together with Maximilian Benner from the University of Vienna.

The paper deals with the interplay of corporate power, interfirm competition and regional economic development. Rising market power across the OECD countries raises the question how industrial policies address the role of competition, including on the regional level. Based on a multifaceted understanding of competition and cooperation between firms in the conceptual literature, this article examines the role of competition-enhancing interventions in regional innovation policies under the smart specialisation approach.

Drawing on quantitative and qualitative analysis of the strategic orientation of smart specialisation strategies in 18 European regions, the article finds that regional policies apply a range of competition-enhancing interventions but still fall short of seizing the ample room for encouraging intraregional interfirm competition. While theory suggests that competition and cooperation are complements in promoting regional innovation, the limited focus of regional policies on interfirm competition might imply a bias in favour of cooperation at the expense of the productivity-enhancing role of interfirm competition.

Hence, the authors argue that regional policies could benefit from a rebalancing by considering the use of more competition-enhancing interventions. This finding is particularly relevant for the process of smart specialisation since balancing competition and cooperation provides an additional rationale for calls in the literature to prevent rent-seeking by incumbent firms in the policymaking process.