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Monopolistic competition for the market with heterogeneous firms

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  • Etro, Federico

Abstract

I study monopolistic competition in patent races where firms are heterogeneous in R&D costs. Only the most efficient firms invest, and they invest more when the value of innovation is higher, while the endogenous set of active firms depends on the profitability of innovation. In particular, selection effects (increasing R&D productivity) emerge after a reduction of the entry cost or after an increase (a reduction) of the value of innovation if the elasticity of the probability of innovation is increasing (decreasing) in investment.

Suggested Citation

  • Etro, Federico, 2019. "Monopolistic competition for the market with heterogeneous firms," Economics Letters, Elsevier, vol. 179(C), pages 9-12.
  • Handle: RePEc:eee:ecolet:v:179:y:2019:i:c:p:9-12
    DOI: 10.1016/j.econlet.2019.03.003
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    References listed on IDEAS

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    1. Jennifer F. Reinganum, 1985. "Innovation and Industry Evolution," The Quarterly Journal of Economics, Oxford University Press, vol. 100(1), pages 81-99.
    2. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-351, March.
    3. Partha Dasgupta & Joseph Stiglitz, 1980. "Uncertainty, Industrial Structure, and the Speed of R&D," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 1-28, Spring.
    4. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626, National Bureau of Economic Research, Inc.
    5. Paolo Bertoletti & Federico Etro, 2018. "Monopolistic Competition with GAS Preferences," DEM Working Papers Series 165, University of Pavia, Department of Economics and Management.
    6. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    7. Paolo Bertoletti & Federico Etro, 2017. "Monopolistic Competition when Income Matters," Economic Journal, Royal Economic Society, vol. 127(603), pages 1217-1243, August.
    8. Tom Lee & Louis L. Wilde, 1980. "Market Structure and Innovation: A Reformulation," The Quarterly Journal of Economics, Oxford University Press, vol. 94(2), pages 429-436.
    9. Dirk Czarnitzki & Federico Etro & Kornelius Kraft, 2014. "Endogenous Market Structures and Innovation by Leaders: An Empirical Test," Economica, London School of Economics and Political Science, vol. 81(321), pages 117-139, January.
    10. Sampson, Thomas, 2016. "Dynamic selection: an idea flows theory of entry, trade and growth," LSE Research Online Documents on Economics 62623, London School of Economics and Political Science, LSE Library.
    11. Glenn C. Loury, 1979. "Market Structure and Innovation," The Quarterly Journal of Economics, Oxford University Press, vol. 93(3), pages 395-410.
    12. Federico Etro, 2006. "Aggressive leaders," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 146-154, March.
    13. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    14. Paolo Bertoletti & Federico Etro, 2016. "Preferences, entry, and market structure," RAND Journal of Economics, RAND Corporation, vol. 47(4), pages 792-821, November.
    15. Paolo Bertoletti & Federico Etro & Ina Simonovska, 2018. "International Trade with Indirect Additivity," American Economic Journal: Microeconomics, American Economic Association, vol. 10(2), pages 1-57, May.
    16. Etro, Federico, 2019. "The Romer model with monopolistic competition and general technologies," Economics Letters, Elsevier, vol. 181(C), pages 1-6.
    17. Federico Etro, 2019. "The Romer Model with Monopolistic Competition and General Technology," Working Papers - Economics wp2019_08.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
    18. Federico Etro, 2004. "Innovation by leaders," Economic Journal, Royal Economic Society, vol. 114(495), pages 281-303, April.
    19. Thomas Sampson, 2016. "Dynamic Selection: An Idea Flows Theory of Entry, Trade, and Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 131(1), pages 315-380.
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    Cited by:

    1. Etro, Federico, 2019. "The Romer model with monopolistic competition and general technologies," Economics Letters, Elsevier, vol. 181(C), pages 1-6.

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    More about this item

    Keywords

    Patent races; Heterogeneous firms; Monopolistic competition;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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