Persistence of Monopoly, Innovation, and R-and-D Spillovers: Static versus Dynamic Analysis
AbstractWe build a dynamic duopoly model that accounts for the empirical observation of monopoly persistence in the long run. More specifically, we analyze the conditions under which it is optimal for the market leader in an initially duopoly setup to undertake pre-emptive R&D investment, ("strategic predation" strategy) that eventually leads to exit of the follower firm. The follower is assumed to benefit from the innovative activities of the leader through R&D spillovers. The novel feature of our approach is that we introduce explicit dynamic model and contrast it with its static counterpart. Contrary to the predictions of the static model, strategic predation that leads to persistence of monopoly is in general optimal strategy to pursue in a dynamic framework when spillovers are not large
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Bibliographic InfoPaper provided by Society for Computational Economics in its series Computing in Economics and Finance 2006 with number 516.
Date of creation: 04 Jul 2006
Date of revision:
dynamic duopoly; R&D spillovers; persistence of monopoly; strategic predation; accommodation;
Find related papers by JEL classification:
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-07-15 (All new papers)
- NEP-COM-2006-07-17 (Industrial Competition)
- NEP-INO-2006-07-26 (Innovation)
- NEP-MIC-2006-07-15 (Microeconomics)
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