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Persistence of Monopoly and Research Specialization

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Author Info
Philipp Weinschenk () (Max Planck Institute for Research on Collective Goods)
Abstract

We examine the persistence of monopolies in markets with innovations when the outcome of research is uncertain. We show that for low success probabilities of research, the incumbent can seldom preempt the potential entrant. Then the efficiency effect outweighs the replacement effect. It is vice versa for high probabilities. Moreover, the incumbent specializes in “safe” research and the potential entrant in “risky” research. We also show that the probability of entry has an inverted U-shape in the success probability. Since even at the peak entry is rather unlikely, the persistence of the monopoly is high.

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Paper provided by Max Planck Institute for Research on Collective Goods in its series Working Paper Series of the Max Planck Institute for Research on Collective Goods with number 2009_11.

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Date of creation: Apr 2009
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Handle: RePEc:mpg:wpaper:2009_11

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Related research
Keywords: Persistence of Monopoly; Efficiency Effect; Replacement Effect; Stochastic Innovations;

Find related papers by JEL classification:
L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Reinganum, Jennifer F, 1983. "Uncertain Innovation and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 73(4), pages 741-48, September. [Downloadable!] (restricted)
    Other versions:
  2. Richard J. Rosen, 1991. "Research and Development with Asymmetric Firm Sizes," RAND Journal of Economics, The RAND Corporation, vol. 22(3), pages 411-429, Autumn. [Downloadable!] (restricted)
  3. Yi, Sang-Seung, 1995. "Uncertain innovation and persistence of monopoly revisited," Economics Letters, Elsevier, vol. 49(3), pages 319-322, September. [Downloadable!] (restricted)
  4. Federico Etro, 2004. "Innovation by leaders," Economic Journal, Royal Economic Society, vol. 114(495), pages 281-303, 04. [Downloadable!] (restricted)
  5. Denicolo, Vincenzo, 2001. "Growth with non-drastic innovations and the persistence of leadership," European Economic Review, Elsevier, vol. 45(8), pages 1399-1413, August. [Downloadable!] (restricted)
  6. Blume, Andreas, 2003. "Bertrand without fudge," Economics Letters, Elsevier, vol. 78(2), pages 167-168, February. [Downloadable!] (restricted)
  7. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc. [Downloadable!]
  8. Milo Bianchi & Magnus Henrekson, 2005. "Is Neoclassical Economics still Entrepreneurless?," Kyklos, Blackwell Publishing, vol. 58(3), pages 353-377, 07. [Downloadable!] (restricted)
    Other versions:
  9. Gilbert, Richard J & Newbery, David M G, 1982. "Preemptive Patenting and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 72(3), pages 514-26, June. [Downloadable!] (restricted)
  10. Kihlstrom, Richard E & Laffont, Jean-Jacques, 1979. "A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 719-48, August. [Downloadable!] (restricted)
  11. Geroski, P. A., 1995. "What do we know about entry?," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 421-440, December. [Downloadable!] (restricted)
  12. Reinganum, Jennifer F, 1984. "Uncertain Innovation and the Persistence of Monopoly: Reply," American Economic Review, American Economic Association, vol. 74(1), pages 243-46, March. [Downloadable!] (restricted)
  13. Gilbert, Richard J & Newberry, David M G, 1984. "Uncertain Innovation and the Persistence of Monopoly: Comment," American Economic Review, American Economic Association, vol. 74(1), pages 238-42, March. [Downloadable!] (restricted)
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