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Monopoly incentives for cost-reducing R&D

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  • Garella, Paolo G.

Abstract

It is shown in this paper that there exist cost innovations for which a monopolist has a higher incentive to invest than a social planner. This unveils the limits of the claim, based on Arrow (1959), that a monopoly always has a lower incentive to innovate than a social planner and therefore than is socially desirable. In contrast to previous results, the comparison of incentives may also depend upon the demand function. Finally, for a restricted domain of analysis, a rule for comparing the monopoly and the social planner incentives is derived.

Suggested Citation

  • Garella, Paolo G., 2012. "Monopoly incentives for cost-reducing R&D," Economics Letters, Elsevier, vol. 117(1), pages 21-24.
    • Handle: RePEc:eee:ecolet:v:117:y:2012:i:1:p:21-24
    DOI: 10.1016/j.econlet.2012.04.050
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    References listed on IDEAS

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    1. Gilbert Richard J, 2006. "Competition and Innovation," Journal of Industrial Organization Education, De Gruyter, vol. 1(1), pages 1-23, December.
    2. 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.
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    4. Gilbert, Richard J & Newbery, David M G, 1982. "Preemptive Patenting and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 72(3), pages 514-526, June.
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    More about this item

    Keywords

    Monopoly; Research and development; Innovation;
    All these keywords.

    JEL classification:

    • L00 - Industrial Organization - - General - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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