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Knowledge transfer, transitional dynamics and optimal Research & Development policy in a dynamic monopoly setting

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  • Jürgen Antony
  • Torben Klarl

Abstract

This paper focuses on the question 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 to sub-optimally lower 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 increase 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," Bremen Papers on Economics & Innovation 2001, University of Bremen, Faculty of Business Studies and Economics.
    • Handle: RePEc:atv:wpaper:2001
    DOI: https://doi.org/10.26092/elib/201
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    References listed on IDEAS

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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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