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 consumersÃ 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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Date of creation: Oct 2008
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Other versions of this item:
- Luca Lambertini, 2009. "Optimal Product Proliferation in Monopoly: A Dynamic Analysis," Review of Economic Analysis, Rimini Centre for Economic Analysis, Rimini Centre for Economic Analysis, vol. 1(1), pages 80-97, September.
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-05-02 (All new papers)
- NEP-COM-2009-05-02 (Industrial Competition)
- NEP-IND-2009-05-02 (Industrial Organization)
- NEP-MIC-2009-05-02 (Microeconomics)
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