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Optimal Product Proliferation in Monopoly: A Dynamic Analysis


  • Luca Lambertini

    (Department of Economics, University of Bologna,Italy)


The monopolist's incentives towards product proliferation are evaluated in an optimal control model considering three alternative regimes: profit-seeking; social planning; and a hybrid case with monopoly pricing and a regulator setting product innovation to maximize welfare. In equilibrium, the profit-seeking firm supplies a socially suboptimal number of varieties to reduce cannibalization while the social planner exploits the same effect to satisfy consumersÕ love for variety and decrease the market price of all products. In terms of the Schumpeter vs Arrow debate on the relationship between market structure and innovation incentives, the results obtained in this model have a definite Arrovian flavour.

Suggested Citation

  • Luca Lambertini, 2009. "Optimal Product Proliferation in Monopoly: A Dynamic Analysis," Review of Economic Analysis, Rimini Centre for Economic Analysis, vol. 1(1), pages 80-97, September.
  • Handle: RePEc:ren:journl:v:1:y:2009:i:1:p:80-97

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    References listed on IDEAS

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    Cited by:

    1. Anton Bondarev & Alfred Greiner, 2017. "Catching-up and falling behind: Effects of learning in an R&D differential game with spillovers," Working papers 2017/02, Faculty of Business and Economics - University of Basel.
    2. Bondarev, Anton A., 2012. "Optimal control over a continuous range of homogeneous and heterogeneous innovations with finite life-cycles," MPRA Paper 40068, University Library of Munich, Germany.
    3. Anton Bondarev, 2016. "Intensity of R&D competition and the generation of innovations in heterogeneous setting," Journal of Evolutionary Economics, Springer, vol. 26(3), pages 621-653, July.
    4. Anton Bondarev, 2012. "The long-run dynamics of product and process innovations for a multi-product monopolist," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 21(8), pages 775-799, November.
    5. repec:spr:annopr:v:247:y:2016:i:2:d:10.1007_s10479-015-1947-9 is not listed on IDEAS

    More about this item


    multiproduct firm; product innovation; optimal control;

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives


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