Since Joseph Schumpeter’s seminal contribution, the relationship between market structure and innovation has been a highly debated issue in economics. This issue, however, tends to be treated as non-problematic in policy statements. For example, the analysis in OECD (2007) does not reflect on whether or not innovation and competition go hand in hand or on whether competition and governance have complementary or offsetting effects on innovation. Instead, it makes a blanket call for regulatory and institutional reform with a view to foster innovative activities. Similar statements have been made by the Commission of the European Union (EU) in the context of the Lisbon Agenda. According to the Commission’s policy documents, the EU will become ‘the most dynamic and competitive knowledge-based economy in the world’ by 2010 as a result of reforms that increase competition in goods and services markets (EU Commission, 2005).This view is echoed in OECD (2006, 57–80), which argues that innovation performance is driven by a wide range of factors that include competitive product markets, macroeconomic stability, availability of internal and external finance, and economic openness.
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