Companies don't invest more because of tax breaks; they do it because they're terrified their rivals are going to beat them to it.
March 20, 2026
Original Paper
Dynamic Investment and Product Market Rivalry: The Network Q Model
SSRN · 6408139
The Takeaway
Traditional economics suggests that cheap borrowing or tax breaks are the primary drivers of corporate growth. This study reveals that the 'network effect' of competition—investing because a direct rival did—is the dominant force shaping how capital moves through the U.S. economy.
From the abstract
We present a new dynamic model of corporate investment in imperfectly-competitive product markets, extending the neoclassical (Q) theory of capital to a multi-firm, multi-product, fullystructural model. Our model embeds a state-of-the-art hedonic demand system, endogenizes firms' markups and generalizes Tobin's Q to a matrix (or network) of product market spillovers, which captures how each firm's investment affects that of its rivals. We provide existence and uniqueness results along with exact