Advanced Search
MyIDEAS: Login to save this paper or follow this series

Innovation, Competition and Welfare-Enhancing Monopoly

Contents:

Author Info

  • Michael R. Darby
  • Lynne G. Zucker

Abstract

The basic competitive model with freely available technology is suited for static industries but misleading as applied to major innovative economies for which development of new technologies equals in magnitude around 10% of gross domestic investment. We distinguish free generic technology from proprietary technologies resulting from risky investment with uncertain outcome. The totality of possible outcomes drives the national innovation system and the returns to a particular successful technology cannot be compared to its own direct investment costs. Eureka moments are hardly ever self-enabling and incentives are required to motivate investment attempting to turn them into an innovation. The alternative to a valuable proprietary innovation is not the same innovation freely available but the unchanged generic technology. Growth is concentrated in any country at any time in a few firms in a few industries that are achieving metamorphic technological progress as a result of breakthrough innovations. So long as the entry and exit of firms using the generic technology sets the price in an industry, one or more price-taking firms can coexist with proprietary technologies yielding more or less substantial quasi-rents to the sunk development costs. Consumer welfare is increased if an innovator creates a proprietary technology such that the market equilibrium price is reduced and output increased. If the technological breakthrough is sufficiently large for the innovator to drive all generic producers out of the industry and increase output as a wealth-maximizing monopolist, consumer welfare is surely increased. After some time, the innovative technology will diffuse into an imitative generic technology. The best innovators develop a stream of innovations so that technological leaders can maintain their status as dominant firm or monopolist for extended periods of time despite lagged diffusion, and consumers benefit from this stream as well. The economics of an innovative nation are different from those of the no-growth stationary state which we teach and fall back on. We propose an ambitious agenda to integrate major research streams treating innovation as an object of economic analysis into our standard models.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w12094.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12094.

as in new window
Length:
Date of creation: Mar 2006
Date of revision:
Publication status: published as Lynne G. Zucker and Michael R. Darby, “Socio-economic Impact of Nanoscale Science: Initial Results and NanoBank,” in Mihail C. Roco and William S. Bainbridge, eds., Nanotechnology: Societal Implications II — Individual Perspectives , Dordrecht, The Netherlands: Springer, 2007. [ISBN 1-4020-4658-8, pp. 7-23]
Handle: RePEc:nbr:nberwo:12094

Note: PR
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

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.:
as in new window
  1. Michael L. Darby & Lynne G. Zucker, 2010. "Grilichesian Breakthroughs: Inventions of Methods of Inventing and Firm Entry in Nanotechnology," NBER Chapters, in: Contributions in Memory of Zvi Griliches, pages 143-164 National Bureau of Economic Research, Inc.
  2. DiMasi, Joseph A. & Hansen, Ronald W. & Grabowski, Henry G., 2003. "The price of innovation: new estimates of drug development costs," Journal of Health Economics, Elsevier, vol. 22(2), pages 151-185, March.
  3. 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.
  4. Zucker, Lynne G & Darby, Michael R & Armstrong, Jeff, 1998. "Geographically Localized Knowledge: Spillovers or Markets?," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 36(1), pages 65-86, January.
  5. Griliches, Zvi, 1990. "Patent Statistics as Economic Indicators: A Survey," Journal of Economic Literature, American Economic Association, vol. 28(4), pages 1661-1707, December.
  6. Kathy S. He & Randall Morck & Bernard Yeung, 2003. "Corporate Stability and Economic Growth," William Davidson Institute Working Papers Series 553, William Davidson Institute at the University of Michigan.
  7. Alvin K. Klevorick & Richard C. Levin & Richard R. Nelson & Sidney G. Winter, 1993. "On the Sources and Significance of Interindustry Differences in Technological Opportunities," Cowles Foundation Discussion Papers 1052, Cowles Foundation for Research in Economics, Yale University.
  8. Petra Moser, 2005. "How Do Patent Laws Influence Innovation? Evidence from Nineteenth-Century World's Fairs," American Economic Review, American Economic Association, vol. 95(4), pages 1214-1236, September.
  9. Lynne G. Zucker & Michael R. Darby & Maximo Torero, 1997. "Labor Mobility from Academe to Commerce," NBER Working Papers 6050, National Bureau of Economic Research, Inc.
  10. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
  11. Michael R. Darby & Lynne G. Zucker, 2003. "Growing by Leaps and Inches: Creative Destruction, Real Cost Reduction, and Inching Up," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 41(1), pages 1-19, January.
  12. Richard R. Nelson, 1959. "The Simple Economics of Basic Scientific Research," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 67, pages 297.
  13. Zucker, Lynne G & Darby, Michael R & Brewer, Marilynn B, 1998. "Intellectual Human Capital and the Birth of U.S. Biotechnology Enterprises," American Economic Review, American Economic Association, vol. 88(1), pages 290-306, March.
  14. Eric J. Bartelsman & Mark Doms, 2000. "Understanding productivity: lessons from longitudinal microdata," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2000-19, Board of Governors of the Federal Reserve System (U.S.).
  15. repec:fth:harver:1473 is not listed on IDEAS
  16. Harberger, Arnold C, 1998. "A Vision of the Growth Process," American Economic Review, American Economic Association, vol. 88(1), pages 1-32, March.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:12094. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.