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Optimal Product Proliferation in Monopoly: A Dynamic Analysis

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  • L. Lambertini

Abstract

The 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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Paper provided by Dipartimento Scienze Economiche, Universita' di Bologna in its series Working Papers with number 648.

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Date of creation: Oct 2008
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Handle: RePEc:bol:bodewp:648

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  15. Cellini, Roberto & Lambertini, Luca, 2002. "A differential game approach to investment in product differentiation," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 27(1), pages 51-62, November.
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Cited by:
  1. Bondarev, Anton A., 2012. "Heterogeneous product and process innovations for a multi-product monopolist under finite life-cycles of production technologies," MPRA Paper 38243, University Library of Munich, Germany.
  2. Anton Bondarev, 2012. "The long-run dynamics of product and process innovations for a multi-product monopolist," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 21(8), pages 775-799, November.

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