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Knowledge Transfer, Transitional Dynamics and Optimal Research & Development Policy in a Dynamic Monopoly Setting

Author

Listed:
  • Jürgen Antony

    (Pforzheim University)

  • Torben Klarl

    (University of Bremen
    Indiana University, Bloomington)

Abstract

This paper focuses on the question of whether or not a reduction of the knowledge barrier is good for welfare. Based on a dynamic monopoly setting with simultaneous investment decisions in process as well as in product Research & Development (R&D), we show that a reduction of the knowledge barrier has ambiguous welfare consequences: due to a lower knowledge barrier, product quality and welfare increase in the short-run. However, this may not necessarily be the case in the long-run. One reason is that a positive long-lasting knowledge barrier shock triggers the monopolist sub-optimally to reduce its product R&D investments today and in the future at the cost of future product quality. This in turn may reduce welfare. Accordingly, to realize the first-best level of product quality, the long-run optimal R&D subsidy rate for product innovations increases with a reduction of the knowledge barrier.

Suggested Citation

  • Jürgen Antony & Torben Klarl, 2020. "Knowledge Transfer, Transitional Dynamics and Optimal Research & Development Policy in a Dynamic Monopoly Setting," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 57(3), pages 579-606, November.
    • Handle: RePEc:kap:revind:v:57:y:2020:i:3:d:10.1007_s11151-020-09779-7
    DOI: 10.1007/s11151-020-09779-7
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    Cited by:

    1. David Audretsch & Dirk Fornahl & Torben Klarl, 2022. "Radical innovation and its regional impact—a roadmap for future research," Small Business Economics, Springer, vol. 58(2), pages 1153-1156, February.

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    More about this item

    Keywords

    Process and product innovation; Learning by doing; Knowledge spillovers; Optimal taxation; Dynamic monopoly analysis;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D6 - Microeconomics - - Welfare Economics
    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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