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Technological Leadership and Persistence of Monopoly under Endogenous Entry: Static versus Dynamic Analysis

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  • Eugen Kovac
  • Viatcheslav Vinogradov
  • Krešimir Žigiæ

Abstract

We build a dynamic oligopoly model with endogenous entry in which a particular firm (leader) invests in an innovation process, facing the subsequent entry of other firms (followers). We identify conditions that make it optimal for the leader in the initial oligopoly situation to undertake pre-emptive R&D investment (strategic predation) eventually resulting in the elimination of all followers. Compared to a static model, the dynamic one provides new insights into the leader’s intertemporal investment choice, its optimal decision making, and the dynamics of the market structure over time. We also contrast the leader’s investment decisions with those of the social planner.

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Bibliographic Info

Paper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number wp401.

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Date of creation: Dec 2009
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Handle: RePEc:cer:papers:wp401

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Keywords: Dynamic oligopoly; endogenous entry; persistence of monopoly; strategic predation; accommodation.;

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  1. Wendy Carlin & Mark Schaffer & Paul Seabright, 2004. "A Minimum of Rivalry: Evidence from Transition Economies on the Importance of Competition for Innovation and Growth," William Davidson Institute Working Papers Series 2004-670, William Davidson Institute at the University of Michigan.
  2. Federico Etro, 2006. "Market Leaders and Industrial Policy," Working Papers 103, University of Milano-Bicocca, Department of Economics, revised Nov 2006.
  3. Federico Etro, 2006. "Aggressive leaders," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 146-154, 03.
  4. Federico Etro, 2004. "Innovation by leaders," Economic Journal, Royal Economic Society, vol. 114(495), pages 281-303, 04.
  5. Creane, Anthony & Konishi, Hideo, 2009. "The unilateral incentives for technology transfers: Predation (and deterrence) by proxy," International Journal of Industrial Organization, Elsevier, vol. 27(3), pages 379-389, May.
  6. Nisvan Erkal & Daniel Piccinin, 2010. "Welfare-Reducing Mergers in Differentiated Oligopolies with Free Entry," The Economic Record, The Economic Society of Australia, vol. 86(273), pages 178-184, 06.
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Cited by:
  1. Jeroen Hinloopen & Grega Smrkolj & Florian Wagener, 2013. "In Defense of Trusts: R&D Cooperation in Global Perspective," Tinbergen Institute Discussion Papers 13-045/II, Tinbergen Institute, revised 04 Mar 2014.
  2. Jeroen Hinloopen & Grega Smrkolj & Florian Wagener, 2011. "From Mind to Market: A Global, Dynamic Analysis of R&D," Tinbergen Institute Discussion Papers 11-139/1, Tinbergen Institute.
  3. Hinloopen, Jeroen & Smrkolj, Grega & Wagener, Florian, 2013. "From mind to market: A global, dynamic analysis of R&D," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 2729-2754.
  4. Jeroen Hinloopen & Grega Smrkolj & Florian Wagener, 2013. "In Defense of Trusts: R&D Cooperation in Global Perspective," Tinbergen Institute Discussion Papers 13-045/II, Tinbergen Institute, revised 04 Mar 2014.

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