Market Structure and the Direction of Technological Change
AbstractWe study a model where innovation comes in two varieties: improvements on existing products, and new products that expand the scope of a technology. We make this distinction in order to highlight how market structure can determine not only the quantity of innovation but also its direction. We study two market structures. The first is the canonical one from the endogenous growth literature, where innovations can be developed by anyone, and developers market their own innovations. We then consider a more concentrated industry, where all innovation and pricing for a given technology is monopolized. We study the implications of the different market structures for both types of innovation, focusing on differences they induce in the direction of technological change. We apply our model model to the case of a hardware/software technology and analyze which market structure offers greater profits to a monopolist who can monopolize either hardware or software. We compare social welfare across the market structures, and discuss whether one type of innovation should be subsidized over another
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 422.
Date of creation: 03 Dec 2006
Date of revision:
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Web page: http://www.EconomicDynamics.org/society.htm
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Market Strucuture; Innovation;
Find related papers by JEL classification:
- L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-01-13 (All new papers)
- NEP-COM-2007-01-13 (Industrial Competition)
- NEP-CSE-2007-01-13 (Economics of Strategic Management)
- NEP-INO-2007-01-13 (Innovation)
- NEP-IPR-2007-01-13 (Intellectual Property Rights)
- NEP-MIC-2007-01-13 (Microeconomics)
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