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Innovation by leaders

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Author Info
Federico Etro

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Abstract

A new rationale for the persistence of monopolies is based on a precommitment of the incumbent monopolist to invest in R&D. In a patent race, as long as entry is free, the Arrow effect disappears: the incumbent has more incentives to invest than any outsider. Paradoxically, a market with some persistence of monopoly is competitive, while one with continuous leapfrogging must hide some barriers to entry. When the size of innovations is endogenous, leaders invest in more radical innovations. If there is a sequence of innovations, cycling investment emerges. Finally, I apply the idea to a general equilibrium model of Schumpeterian growth with persistence of monopoly. Copyright 2004 Royal Economic Society.

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Publisher Info
Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 114 (2004)
Issue (Month): 495 (04)
Pages: 281-303
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:ecj:econjl:v:114:y:2004:i:495:p:281-303

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. repec:bep:maccon:v:7:y:2007:i:1:p:1215-1215 is not listed on IDEAS
    Other versions:
  2. Blundell, Richard & Griffith, Rachel & van Reenen, John, 1999. "Market Share, Market Value and Innovation in a Panel of British Manufacturing Firms," Review of Economic Studies, Blackwell Publishing, vol. 66(3), pages 529-54, July. [Downloadable!] (restricted)
  3. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June. [Downloadable!] (restricted)
  4. Lee, Tom & Wilde, Louis L, 1980. "Market Structure and Innovation: A Reformulation," The Quarterly Journal of Economics, MIT Press, vol. 94(2), pages 429-36, March. [Downloadable!] (restricted)
  5. Denicolo, Vincenzo, 2001. "Growth with non-drastic innovations and the persistence of leadership," European Economic Review, Elsevier, vol. 45(8), pages 1399-1413, August. [Downloadable!] (restricted)
  6. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring. [Downloadable!] (restricted)
  7. Reinganum, Jennifer F., 1985. "A two-stage model of research and development with endogenous second-mover advantages," International Journal of Industrial Organization, Elsevier, vol. 3(3), pages 275-292, September. [Downloadable!] (restricted)
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  8. Reinganum, Jennifer F, 1985. "Innovation and Industry Evolution," The Quarterly Journal of Economics, MIT Press, vol. 100(1), pages 81-99, February. [Downloadable!] (restricted)
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  9. Dixit, Avinash K, 1987. "Strategic Behavior in Contests," American Economic Review, American Economic Association, vol. 77(5), pages 891-98, December. [Downloadable!] (restricted)
  10. Kortum, Samuel, 1993. "Equilibrium R&D and the Patent-R&D Ratio: U.S. Evidence," American Economic Review, American Economic Association, vol. 83(2), pages 450-57, May.
  11. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc. [Downloadable!]
  12. Loury, Glenn C, 1979. "Market Structure and Innovation," The Quarterly Journal of Economics, MIT Press, vol. 93(3), pages 395-410, August. [Downloadable!] (restricted)
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  13. Peter Howitt, 2000. "Endogenous Growth and Cross-Country Income Differences," American Economic Review, American Economic Association, vol. 90(4), pages 829-846, September. [Downloadable!] (restricted)
  14. Zeira, Joseph, 2002. "Innovations, Patent Races, and Endogenous Growth," Working Paper Series rwp02-047, Harvard University, John F. Kennedy School of Government. [Downloadable!]
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  15. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-51, March. [Downloadable!] (restricted)
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  16. Romer, Paul M, 1987. "Growth Based on Increasing Returns Due to Specialization," American Economic Review, American Economic Association, vol. 77(2), pages 56-62, May. [Downloadable!] (restricted)
  17. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S71-102, October. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Kornprobst, Wolfgang, 2006. "Das Romer-Modell mit qualitätsverbesserndem technischen Fortschritt," Regensburger Diskussionsbeiträge zur Wirtschaftswissenschaft 412, University of Regensburg, Department of Economics. [Downloadable!]
  2. Färnstrand Damsgaard, Erika, 2009. "Patent Scope and Technology Choice," Working Paper Series 792, Research Institute of Industrial Economics. [Downloadable!]
  3. Wolf-Heimo Grieben, 2005. "Schumpeterian growth and the political economy of employment protection," Journal of Economics, Springer, vol. 10(1), pages 77-118, December. [Downloadable!] (restricted)
  4. Kresimir Zigic & Viatcheslav Vinogradov & Eugen Kovac, 2006. "Persistence of Monopoly, Innovation, and R-and-D Spillovers: Static versus Dynamic Analysis," Computing in Economics and Finance 2006 516, Society for Computational Economics. [Downloadable!]
  5. Giammario Impullitti, 2007. "International Schumpeterian Competition and Optimal R&D subsidies," Economics Working Papers ECO2007/55, European University Institute. [Downloadable!]
  6. Federico Etro, 2007. "Stackelberg competition with endogenous entry," Working Papers 121, University of Milano-Bicocca, Department of Economics, revised 2007. [Downloadable!]
  7. Michael Reksulak & William F. Shughart & Robert D. Tollison, 2008. "Innovation and the opportunity cost of monopoly," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 29(8), pages 619-627. [Downloadable!]
  8. Philipp Weinschenk, 2009. "Persistence of Monopoly and Research Specialization," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2009_11, Max Planck Institute for Research on Collective Goods. [Downloadable!]
  9. Thanh Le, 2008. "A dual economy model of endogenous growth with R&D and market structure," Journal of Evolutionary Economics, Springer, vol. 18(3), pages 349-366, August. [Downloadable!] (restricted)
  10. Federico Etro, 2006. "Market Leaders and Industrial Policy," Working Papers 103, University of Milano-Bicocca, Department of Economics, revised Nov 2006. [Downloadable!]
  11. Czarnitzki, Dirk & Kraft, Kornelius, 2007. "Mitarbeiteranreizsysteme und Innovationserfolg," ZEW Discussion Papers 07-075, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  12. Pietro Peretto & Michelle Connolly, 2007. "The Manhattan Metaphor," Journal of Economic Growth, Springer, vol. 12(4), pages 329-350, December. [Downloadable!] (restricted)
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