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The Welfare Effects of Monopoly Innovation

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  • Shuntian Yao

    (Division of Economics,School of Humanities and Social Sciences, Nanyang Technological University, Singapore)

  • Lydia L. Gan

    (Division of Economics,School of Humanities and Social Sciences, Nanyang Technological University, Singapore)

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    Abstract

    In this paper we study the welfare effect of a monopoly innovation. Unlike many partial equilibrium models carried out in previous studies, general equilibrium models are constructed and analyzed in greater details. We discover that, technical innovation carried out by a monopolist could significantly increase the social welfare. We conclude that, in general, the criticism against monopoly innovation based on its increased dead weight loss is less accurate as previously postulated by many studies.

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    File URL: http://www.ntu.edu.sg/hss2/egc/wp/2006/2006-09.pdf
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    Bibliographic Info

    Paper provided by Nanyang Technolgical University, School of Humanities and Social Sciences, Economic Growth centre in its series Economic Growth centre Working Paper Series with number 0609.

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    Length: 28 pages
    Date of creation: Sep 2006
    Date of revision:
    Handle: RePEc:nan:wpaper:0609

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    1. Waterson, Michael, 1982. "The Incentive to Invent When a New Input Is Involved," Economica, London School of Economics and Political Science, vol. 49(196), pages 435-45, November.
    2. Jenny, Frederic & Weber, Andre-Paul, 1983. "Aggregate Welfare Loss Due to Monopoly Power in the French Economy: Some Tentative Estimates," Journal of Industrial Economics, Wiley Blackwell, vol. 32(2), pages 113-30, December.
    3. Williamson, Oliver E, 1969. "Economies as an Antitrust Defense: Reply," American Economic Review, American Economic Association, vol. 59(5), pages 954-59, December.
    4. Carson, Richard, 1975. "On Monopoly Welfare Losses: Comment," American Economic Review, American Economic Association, vol. 65(5), pages 1008-14, December.
    5. Littlechild, S C, 1981. "Misleading Calculations of the Social Costs of Monopoly Power," Economic Journal, Royal Economic Society, vol. 91(362), pages 348-63, June.
    6. DePrano, Michael E & Nugent, Jeffrey B, 1969. "Economies as an Antitrust Defense: Comment," American Economic Review, American Economic Association, vol. 59(5), pages 947-53, December.
    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.
    8. Flavio Delbono & Vincenzo Denicolo, 1988. "Incentives to Innovate in a Cournot Oligopoly," Working Papers 44, Dipartimento Scienze Economiche, Universita' di Bologna.
    9. Neary, Hugh M., 1992. "Some general equilibrium aspects of a labor-managed economy with monopoly elements," Journal of Comparative Economics, Elsevier, vol. 16(4), pages 633-654, December.
    10. Worcester, Dean A, Jr, 1975. "On Monopoly Welfare Losses: Comment," American Economic Review, American Economic Association, vol. 65(5), pages 1015-23, December.
    11. Michael Reksulak & William F. Shughart & Robert D. Tollison, 2008. "Innovation and the opportunity cost of monopoly," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 29(8), pages 619-627.
    12. Posner, Richard A, 1975. "The Social Costs of Monopoly and Regulation," Journal of Political Economy, University of Chicago Press, vol. 83(4), pages 807-27, August.
    13. Bergson, Abram, 1973. "On Monopoly Welfare Losses," American Economic Review, American Economic Association, vol. 63(5), pages 853-70, December.
    14. Geroski, P A, 1990. "Innovation, Technological Opportunity, and Market Structure," Oxford Economic Papers, Oxford University Press, vol. 42(3), pages 586-602, July.
    15. Hansen, Claus Thustrup, 1999. "Second-best antitrust in general equilibrium: a special case," Economics Letters, Elsevier, vol. 63(2), pages 193-199, May.
    16. David Schwartzman, 1960. "The Burden of Monopoly," Journal of Political Economy, University of Chicago Press, vol. 68, pages 627.
    17. Hill, Martyn & Waterson, Michael, 1983. "Labor-managed Cournot oligopoly and industry output," Journal of Comparative Economics, Elsevier, vol. 7(1), pages 43-51, March.
    18. Cowling, Keith & Mueller, Dennis C, 1978. "The Social Costs of Monopoly Power," Economic Journal, Royal Economic Society, vol. 88(352), pages 727-48, December.
    19. Kay, J. A., 1983. "A general equilibrium approach to the measurement of monopoly welfare loss," International Journal of Industrial Organization, Elsevier, vol. 1(4), pages 317-331, December.
    20. Neary, Hugh M., 1984. ""Labor-managed cournot oligopoly and industry output": A comment," Journal of Comparative Economics, Elsevier, vol. 8(3), pages 322-327, September.
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