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Innovation and the opportunity cost of monopoly

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Author Info
Michael Reksulak (School of Economic Development, Georgia Southern University, Statesboro, GA, USA)
William F. Shughart (Department of Economics, The University of Mississippi, University, MS, USA)
Robert D. Tollison (Department of Economics, Clemson University, Clemson, SC, USA)

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Abstract

Innovation enables monopolists to lower their costs, expand their outputs, and reduce their prices. It is conventional to conclude that social welfare unambiguously increases as a result. Assuming linear demand and marginal cost, this paper shows, however, that innovation raises the opportunity cost of monopoly: as a firm enjoying market power becomes more efficient, greater amounts of surplus are sacrificed by consumers because of the progressive monopolist's failure to produce the new, larger competitive output. Innovation, in other words, increases the social value of competition by raising the deadweight cost of monopoly. Copyright © 2008 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/mde.1425
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Publisher Info
Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

Volume (Year): 29 (2008)
Issue (Month): 8 ()
Pages: 619-627
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:wly:mgtdec:v:29:y:2008:i:8:p:619-627

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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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. Kamien, Morton I & Schwartz, Nancy L, 1975. "Market Structure and Innovation: A Survey," Journal of Economic Literature, American Economic Association, vol. 13(1), pages 1-37, March. [Downloadable!] (restricted)
  2. Federico Etro, 2004. "Innovation by leaders," Economic Journal, Royal Economic Society, vol. 114(495), pages 281-303, 04. [Downloadable!] (restricted)
  3. Scitovsky, Tibor, 1990. "The Benefits of Asymmetric Markets," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 135-48, Winter. [Downloadable!] (restricted)
  4. Brodley, Joseph F, 1990. "Antitrust Law and Innovation Cooperation," Journal of Economic Perspectives, American Economic Association, vol. 4(3), pages 97-112, Summer. [Downloadable!] (restricted)
  5. Swan, Peter L, 1970. "Market Structure and Technological Progress: The Influence of Monopoly on Product Innovation," The Quarterly Journal of Economics, MIT Press, vol. 84(4), pages 627-38, November. [Downloadable!] (restricted)
  6. Dilorenzo, Thomas J., 1985. "The origins of antitrust: An interest-group perspective," International Review of Law and Economics, Elsevier, vol. 5(1), pages 73-90, June. [Downloadable!] (restricted)
  7. Dasgupta, Partha & Gilbert, Richard J & Stiglitz, Joseph E, 1982. "Invention and Innovation under Alternative Market Structures: The Case of Natural Resources," Review of Economic Studies, Blackwell Publishing, vol. 49(4), pages 567-82, October. [Downloadable!] (restricted)
  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)
    Other versions:
  9. 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!]
  10. Stephen L. Parente & Edward C. Prescott, 1999. "Monopoly Rights: A Barrier to Riches," American Economic Review, American Economic Association, vol. 89(5), pages 1216-1233, December. [Downloadable!] (restricted)
    Other versions:
  11. DePrano, Michael E & Nugent, Jeffrey B, 1969. "Economies as an Antitrust Defense: Comment," American Economic Review, American Economic Association, vol. 59(5), pages 947-53, December. [Downloadable!] (restricted)
  12. Jorde, Thomas M & Teece, David J, 1990. "Innovation and Cooperation: Implications for Competition and Antitrust," Journal of Economic Perspectives, American Economic Association, vol. 4(3), pages 75-96, Summer. [Downloadable!] (restricted)
  13. Jonathan B. Baker, 1999. "Policy Watch: Developments in Antitrust Economics," Journal of Economic Perspectives, American Economic Association, vol. 13(1), pages 181-194, Winter. [Downloadable!] (restricted)
  14. Gerosky, P A & Pomroy, R, 1990. "Innovation and the Evolution of Market Structure," Journal of Industrial Economics, Blackwell Publishing, vol. 38(3), pages 299-314, March. [Downloadable!] (restricted)
  15. Romano, Richard E, 1987. "A Note on Market Structure and Innovation When Inventors Can Enter," Journal of Industrial Economics, Blackwell Publishing, vol. 35(3), pages 353-58, March. [Downloadable!] (restricted)
  16. Williamson, Oliver E, 1969. "Economies as an Antitrust Defense: Reply," American Economic Review, American Economic Association, vol. 59(5), pages 954-59, December. [Downloadable!] (restricted)
  17. Jackson, Raymond, 1970. "The Consideration of Economies in Merger Cases," Journal of Business, University of Chicago Press, vol. 43(4), pages 439-47, October. [Downloadable!] (restricted)
  18. Tandon, Pankaj, 1982. "Optimal Patents with Compulsory Licensing," Journal of Political Economy, University of Chicago Press, vol. 90(3), pages 470-86, June. [Downloadable!] (restricted)
  19. 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:
  20. Federico Etro, 2006. "Aggressive Leaders," RAND Journal of Economics, The RAND Corporation, vol. 37(1), pages 146-154, Spring.
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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. Shuntian Yao & Lydia L. Gan, 2006. "The Welfare Effects of Monopoly Innovation," Economic Growth centre Working Paper Series 0609, Nanyang Technolgical University, School of Humanities and Social Sciences, Economic Growth centre. [Downloadable!]
  2. Federico Etro, 2006. "Market Leaders and Industrial Policy," Working Papers 103, University of Milano-Bicocca, Department of Economics, revised Nov 2006. [Downloadable!]
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