Optimal Product Proliferation in Monopoly: A Dynamic Analysis
AbstractThe monopolist's incentives towards product proliferation are evaluated in an optimal control model considering three alternative regimes: profit-seeking; social planning; and a hybrid case with monopoly pricing and a regulator setting product innovation to maximize welfare. In equilibrium, the profit-seeking firm supplies a socially suboptimal number of varieties to reduce cannibalization while the social planner exploits the same effect to satisfy consumersÕ love for variety and decrease the market price of all products. In terms of the Schumpeter vs Arrow debate on the relationship between market structure and innovation incentives, the results obtained in this model have a definite Arrovian flavour.
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Bibliographic InfoArticle provided by Rimini Centre for Economic Analysis in its journal Review of Economic Analysis.
Volume (Year): 1 (2009)
Issue (Month): 1 (September)
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multiproduct firm; product innovation; optimal control;
Other versions of this item:
- L. Lambertini, 2008. "Optimal Product Proliferation in Monopoly: A Dynamic Analysis," Working Papers 648, Dipartimento Scienze Economiche, Universita' di Bologna.
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
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