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Durable Goods, Market Structure and the Incentives to Innovate

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  • Bond, Eric W
  • Samuelson, Larry

Abstract

A commonly-cited finding in the innovation literature is that a monopoly tends to innovate too little. This paper demonstrates that a monopoly may devote more resources to innovation than is socially optimal if it produces a durable good. This possibility occurs because durability creates new innovation incentives. Once an initial stock of a durable good has been produced, the monopoly faces a residual demand for the good. Innovation may allow the monopoly to more profitably exploit this residual demand, and this ability may lead the monopoly to devote more resources to innovation than is socially optimal. Copyright 1987 by The Review of Economic Studies Limited.

Suggested Citation

  • Bond, Eric W & Samuelson, Larry, 1987. "Durable Goods, Market Structure and the Incentives to Innovate," Economica, London School of Economics and Political Science, vol. 54(213), pages 57-67, February.
  • Handle: RePEc:bla:econom:v:54:y:1987:i:213:p:57-67
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    Cited by:

    1. Jong-Hee Hahn & Jin-Hyuk Kim, 2012. "Monopoly R&D and Compatibility Decisions in Network Industries," Working papers 2012rwp-43, Yonsei University, Yonsei Economics Research Institute.
    2. repec:kap:jeczfn:v:76:y:2002:i:1:d:10.1007_s712-002-8219-3 is not listed on IDEAS
    3. F. Javier Casado-Izaga & Ana I. Saracho, 2002. "Choice of Product Variety for the Durable-goods Monopolist," Journal of Economics, Springer, vol. 76(1), pages 33-48, May.
    4. William Caylor, 2016. "Credible Signals Of The Release Of New Versions," Economic Inquiry, Western Economic Association International, vol. 54(2), pages 862-878, April.
    5. Gregory Goering & Michael Pippenger, 2003. "Dynamic consistency and monopoly," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 31(2), pages 188-194, June.

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