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Market Structure and the Direction of Technological Change

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Author Info

  • Matthew Mitchell

    ()
    (Department of Economics University of Iowa)

  • Andy Skrzypacz

Abstract

We 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 Info

Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 422.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:422

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Keywords: Market Strucuture; Innovation;

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  1. Nancy L. Stokey, 1981. "Rational Expectations and Durable Goods Pricing," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 112-128, Spring.
  2. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
  3. Howitt, Peter & Griffith, Rachel & Aghion, Philippe & Blundell, Richard & Bloom, Nick, 2005. "Competition and Innovation: An Inverted-U Relationship," Scholarly Articles 4481507, Harvard University Department of Economics.
  4. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-51, March.
  5. Andrea Shepard, 1987. "Licensing to Enhance Demand for New Technologies," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 360-368, Autumn.
  6. Daron Acemoglu, 2002. "Directed Technical Change," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 781-809.
  7. Richard Schmalensee, 2000. "Antitrust Issues in Schumpeterian Industries," American Economic Review, American Economic Association, vol. 90(2), pages 192-196, May.
  8. Romer, Paul M, 1987. "Growth Based on Increasing Returns Due to Specialization," American Economic Review, American Economic Association, vol. 77(2), pages 56-62, May.
  9. Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 314-32, April.
  10. Paul M. Romer, 2000. "Should the Government Subsidize Supply or Demand in the Market for Scientists and Engineers?," NBER Working Papers 7723, National Bureau of Economic Research, Inc.
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Cited by:
  1. Shi Qi, 2008. "Advertising, Entry Deterrence, and Industry Innovation," Levine's Working Paper Archive 122247000000002137, David K. Levine.
  2. Shi Qi, 2008. "Advertising, Entry Deterrence, and Industry Innovation," Working Papers 2008-1, University of Minnesota, Department of Economics, revised 03 2008.

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