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Monopoly incentives for cost-reducing R&D


  • Garella, Paolo G.


It is shown in this paper that there exist cost innovations for which a monopolist has a higher incentive to invest than a social planner. This unveils the limits of the claim, based on Arrow (1959), that a monopoly always has a lower incentive to innovate than a social planner and therefore than is socially desirable. In contrast to previous results, the comparison of incentives may also depend upon the demand function. Finally, for a restricted domain of analysis, a rule for comparing the monopoly and the social planner incentives is derived.

Suggested Citation

  • Garella, Paolo G., 2012. "Monopoly incentives for cost-reducing R&D," Economics Letters, Elsevier, vol. 117(1), pages 21-24.
  • Handle: RePEc:eee:ecolet:v:117:y:2012:i:1:p:21-24 DOI: 10.1016/j.econlet.2012.04.050

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    References listed on IDEAS

    1. Gilbert Richard J, 2006. "Competition and Innovation," Journal of Industrial Organization Education, De Gruyter, vol. 1(1), pages 1-23, December.
    2. Gilbert, Richard J & Newbery, David M G, 1982. "Preemptive Patenting and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 72(3), pages 514-526, June.
    3. Reinganum, Jennifer F, 1983. "Uncertain Innovation and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 73(4), pages 741-748, September.
    4. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, July.
    5. A. Michael Spence, 1975. "Monopoly, Quality, and Regulation," Bell Journal of Economics, The RAND Corporation, vol. 6(2), pages 417-429, Autumn.
    6. Xavier Vives, 2008. "INNOVATION AND COMPETITIVE PRESSURE -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 56(3), pages 419-469, December.
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    More about this item


    Monopoly; Research and development; Innovation;

    JEL classification:

    • L00 - Industrial Organization - - General - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General


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