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Persistence of Monopoly, Innovation, and R-and-D Spillovers: Static versus Dynamic Analysis

Author

Listed:
  • Kresimir Zigic

    (CERGE-EI)

  • Viatcheslav Vinogradov

    (CERGE-EI)

  • Eugen Kovac

    (CERGE-EI)

Abstract

We 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

Suggested Citation

  • Kresimir Zigic & Viatcheslav Vinogradov & Eugen Kovac, 2006. "Persistence of Monopoly, Innovation, and R-and-D Spillovers: Static versus Dynamic Analysis," Computing in Economics and Finance 2006 516, Society for Computational Economics.
  • Handle: RePEc:sce:scecfa:516
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    References listed on IDEAS

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    Cited by:

    1. Etro, Federico, 2008. "Growth leaders," Journal of Macroeconomics, Elsevier, vol. 30(3), pages 1148-1172, September.
    2. Federico Etro, 2006. "Market Leaders and Industrial Policy," Working Papers 103, University of Milano-Bicocca, Department of Economics, revised Nov 2006.

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    More about this item

    Keywords

    dynamic duopoly; R&D spillovers; persistence of monopoly; strategic predation; accommodation;
    All these keywords.

    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

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