Advanced Search
MyIDEAS: Login to save this article or follow this journal

Innovation and the opportunity cost of monopoly

Contents:

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)

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.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://hdl.handle.net/10.1002/mde.1425
File Function: Link to full text; subscription required
Download Restriction: no

Bibliographic 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

as in new window
Handle: RePEc:wly:mgtdec:v:29:y:2008:i:8:p:619-627

Contact details of provider:
Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

Related research

Keywords:

References

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.:
as in new window
  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.
  2. Edward C. Prescott & Stephen L. Parente, 1999. "Monopoly Rights: A Barrier to Riches," American Economic Review, American Economic Association, vol. 89(5), pages 1216-1233, December.
  3. Jackson, Raymond, 1970. "The Consideration of Economies in Merger Cases," The Journal of Business, University of Chicago Press, vol. 43(4), pages 439-47, October.
  4. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
  5. Gerosky, P A & Pomroy, R, 1990. "Innovation and the Evolution of Market Structure," Journal of Industrial Economics, Wiley Blackwell, vol. 38(3), pages 299-314, March.
  6. 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, Wiley Blackwell, vol. 49(4), pages 567-82, October.
  7. Reinganum, Jennifer F, 1985. "Innovation and Industry Evolution," The Quarterly Journal of Economics, MIT Press, vol. 100(1), pages 81-99, February.
  8. Federico Etro, 2006. "Aggressive leaders," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 146-154, 03.
  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.
  10. 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.
  11. Romano, Richard E, 1987. "A Note on Market Structure and Innovation When Inventors Can Enter," Journal of Industrial Economics, Wiley Blackwell, vol. 35(3), pages 353-58, March.
  12. Jonathan B. Baker, 1999. "Policy Watch: Developments in Antitrust Economics," Journal of Economic Perspectives, American Economic Association, vol. 13(1), pages 181-194, Winter.
  13. Brodley, Joseph F, 1990. "Antitrust Law and Innovation Cooperation," Journal of Economic Perspectives, American Economic Association, vol. 4(3), pages 97-112, Summer.
  14. 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, Wiley Blackwell, vol. 66(3), pages 529-54, July.
  15. Williamson, Oliver E, 1969. "Economies as an Antitrust Defense: Reply," American Economic Review, American Economic Association, vol. 59(5), pages 954-59, December.
  16. Scitovsky, Tibor, 1990. "The Benefits of Asymmetric Markets," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 135-48, Winter.
  17. 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.
  18. Tandon, Pankaj, 1982. "Optimal Patents with Compulsory Licensing," Journal of Political Economy, University of Chicago Press, vol. 90(3), pages 470-86, June.
  19. 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.
  20. 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.
  21. Federico Etro, 2004. "Innovation by leaders," Economic Journal, Royal Economic Society, vol. 114(495), pages 281-303, 04.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Yao, Shuntian & Gan, Lydia, 2010. "Monopoly innovation and welfare effects," Economics Discussion Papers 2010-10, Kiel Institute for the World Economy.
  2. Federico Etro, 2006. "Market Leaders and Industrial Policy," Working Papers 103, University of Milano-Bicocca, Department of Economics, revised Nov 2006.
  3. 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.
  4. Elvio Accinelli & Leonardo Tenorio, 2012. "Monopolios naturales y tecnología," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(1), pages 99-115, May.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:wly:mgtdec:v:29:y:2008:i:8:p:619-627. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.