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Market Structure and Schumpeterian Growth

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  • Kerk Phillips & Val Lambson

Abstract

We present a discrete-time version of an otherwise standard Schumpeterian growth model. Discrete time exhibits two important differences from continuous time. First, the probability of successful innovation cannot be homogeneous of degree one in inputs. A natural R&D analogue to constant returns to scale implies a Poisson production function with diminishing marginal product of inputs. Second, R&D firms sometimes innovate simultaneously. The resulting market conduct is critical. We consider both Bertrand competition and collusion among successful innovators. Surprisingly, the industry demand for R&D inputs does not depend on the number of firms in the R&D sector if Bertrand competition ensues following ties. In contrast, demand for R&D inputs is higher if ties are expected to result in collusion. In general equilibrium, Bertrand competition leads to random switching between monopoly and competitive production. Under collusion, production is always at the monopoly level, but there is faster growth. Numerical simulations suggest that this also leads to higher welfare.

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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society 2004 Far Eastern Meetings with number 490.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:feam04:490

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Keywords: growth; market structure;

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  1. Gene M. Grossman & Elhanan Helpman, 1991. "Quality Ladders in the Theory of Growth," NBER Working Papers 3099, National Bureau of Economic Research, Inc.
  2. Deissenberg, C & Nyssen, J., 1997. "A Simple Model of Schumpeterian Growth with Complex Dynamics," G.R.E.Q.A.M. 97a01, Universite Aix-Marseille III.
  3. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-51, March.
  4. Robert E. Hall, 1988. "The Relation Between Price and Marginal Cost in U.S. Industry," NBER Working Papers 1785, National Bureau of Economic Research, Inc.
  5. Phillips, Kerk L., 1993. "Quality ladders, growth, and R&D: an assessment from U.S. industry," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 38(1), pages 239-273, June.
  6. Segerstrom, Paul S & Anant, T C A & Dinopoulos, Elias, 1990. "A Schumpeterian Model of the Product Life Cycle," American Economic Review, American Economic Association, vol. 80(5), pages 1077-91, December.
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Cited by:
  1. Cecilia García-Peñalosa & Jean-François Wen, 2008. "Redistribution and entrepreneurship with Schumpeterian growth," Journal of Economic Growth, Springer, vol. 13(1), pages 57-80, March.
  2. Ryo Horii & Tatsuro Iwaisako, 2005. "Economic Growth with Imperfect Protection of Intellectual Property Rights," Development and Comp Systems 0508001, EconWPA.
  3. Jean-François Wen & Cecilia García-Peñalosa, 2004. "Redistribution and Occupational Choice in a Schumpeterian Growth Model," CESifo Working Paper Series 1323, CESifo Group Munich.
  4. Manuel A. Gómez, 2012. "Equilibrium Dynamics Of An Endogenous Growth Model With An Erosion Effect And Duplication In R&D," Manchester School, University of Manchester, vol. 80(6), pages 700-717, December.
  5. Nie, Pu-yan, 2009. "Commitment for storable goods under vertical integration," Economic Modelling, Elsevier, vol. 26(2), pages 414-417, March.
  6. Pu-yan Nie, 2012. "Maintenance Commitments for Monopolized Goods," Prague Economic Papers, University of Economics, Prague, vol. 2012(1), pages 18-29.

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