## ABSTRACT

On comparing relations (4.26) and (4.27) with (4.22)-(4.24), it will be noticed that, given E and a, both the cost mark-up and the research intensity are now higher, while the number of firms is lower. The research mix given by the ratio R*JR** is seen to depend solely on p, i.e. on the responsiveness of demand to the product-innovative effort (we have to assume of course that p < 1). The role of the parameters a and E remains very much the same as in the original model. In particular, when a declines, given E and /?, the number of firms increases so that the industry becomes more competitive. At the same time, however, the firm’s R&D expenditure and the industry’s innovation rate both fall; the Schumpeterian negative relationship between static and dynamic efficiency thus remains in force.