Evidence shows that firms build their market position by accumulating knowledge protected by secrecy, patents and other appropriation devices. I explore the implications of this fact in a model economy where oligopolistic firms establish in-house R&D programs. In symmetric equilibrium, the number of firms determines concentration and firm size. These determine the scale and the efficiency of R&D operations and the rate of innovation. The number of firms, moreover, is endogenous and determined jointly with the rate of growth by the zero-profit condition. This property yields new results. For example, the scale effect of population size may be negative. The market allocation of resources is not Pareto optimal. I discuss the nature of this distortion.
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Paper provided by Duke University, Department of Economics in its series Working Papers with number
96-07.
Length: Date of creation: 1996 Date of revision: Publication status: Published in EUROPEAN ECONOMIC REVIEW, Vol. 43, 1999, pages 1747-1773 Handle: RePEc:duk:dukeec:96-07
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Find related papers by JEL classification: E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
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