Innovation and the opportunity cost of monopoly
Innovation enables monopolists to lower their costs, expand their outputs, and reduce their prices. It is conventional to conclude that social welfare unambiguously increases as a result. Assuming linear demand and marginal cost, this paper shows, however, that innovation raises the opportunity cost of monopoly: as a firm enjoying market power becomes more efficient, greater amounts of surplus are sacrificed by consumers because of the progressive monopolist's failure to produce the new, larger competitive output. Innovation, in other words, increases the social value of competition by raising the deadweight cost of monopoly. Copyright © 2008 John Wiley & Sons, Ltd.
Volume (Year): 29 (2008)
Issue (Month): 8 ()
|Contact details of provider:|| Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Romano, Richard E, 1987. "A Note on Market Structure and Innovation When Inventors Can Enter," Journal of Industrial Economics, Wiley Blackwell, vol. 35(3), pages 353-58, March.
- Dasgupta, Partha & Gilbert, Richard J & Stiglitz, Joseph E, 1982. "Invention and Innovation under Alternative Market Structures: The Case of Natural Resources," Review of Economic Studies, Wiley Blackwell, vol. 49(4), pages 567-82, October.
- Jackson, Raymond, 1970. "The Consideration of Economies in Merger Cases," The Journal of Business, University of Chicago Press, vol. 43(4), pages 439-47, October.
- Reinganum, Jennifer R., .
"Innovation and Industry Evolution,"
426, California Institute of Technology, Division of the Humanities and Social Sciences.
- Paul M Romer, 1999.
"Endogenous Technological Change,"
Levine's Working Paper Archive
2135, David K. Levine.
- Edward C. Prescott & Stephen L. Parente, 1999.
"Monopoly Rights: A Barrier to Riches,"
American Economic Review,
American Economic Association, vol. 89(5), pages 1216-1233, December.
- Jonathan B. Baker, 1999. "Policy Watch: Developments in Antitrust Economics," Journal of Economic Perspectives, American Economic Association, vol. 13(1), pages 181-194, Winter.
- Blundell, Richard & Griffith, Rachel & van Reenen, John, 1999. "Market Share, Market Value and Innovation in a Panel of British Manufacturing Firms," Review of Economic Studies, Wiley Blackwell, vol. 66(3), pages 529-54, July.
- Federico Etro, 2006. "Aggressive leaders," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 146-154, 03.
- repec:cup:cbooks:9780521293853 is not listed on IDEAS
- Gerosky, P A & Pomroy, R, 1990. "Innovation and the Evolution of Market Structure," Journal of Industrial Economics, Wiley Blackwell, vol. 38(3), pages 299-314, March.
- Kamien, Morton I & Schwartz, Nancy L, 1975. "Market Structure and Innovation: A Survey," Journal of Economic Literature, American Economic Association, vol. 13(1), pages 1-37, March.
- Scitovsky, Tibor, 1990. "The Benefits of Asymmetric Markets," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 135-48, Winter.
- Swan, Peter L, 1970. "Market Structure and Technological Progress: The Influence of Monopoly on Product Innovation," The Quarterly Journal of Economics, MIT Press, vol. 84(4), pages 627-38, November.
- DePrano, Michael E & Nugent, Jeffrey B, 1969. "Economies as an Antitrust Defense: Comment," American Economic Review, American Economic Association, vol. 59(5), pages 947-53, December.
- 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.
- Federico Etro, 2004. "Innovation by leaders," Economic Journal, Royal Economic Society, vol. 114(495), pages 281-303, 04.
- Tandon, Pankaj, 1982. "Optimal Patents with Compulsory Licensing," Journal of Political Economy, University of Chicago Press, vol. 90(3), pages 470-86, June.
- Dilorenzo, Thomas J., 1985. "The origins of antitrust: An interest-group perspective," International Review of Law and Economics, Elsevier, vol. 5(1), pages 73-90, June.
- Brodley, Joseph F, 1990. "Antitrust Law and Innovation Cooperation," Journal of Economic Perspectives, American Economic Association, vol. 4(3), pages 97-112, Summer.
- Williamson, Oliver E, 1969. "Economies as an Antitrust Defense: Reply," American Economic Review, American Economic Association, vol. 59(5), pages 954-59, December.
- Jorde, Thomas M & Teece, David J, 1990. "Innovation and Cooperation: Implications for Competition and Antitrust," Journal of Economic Perspectives, American Economic Association, vol. 4(3), pages 75-96, Summer.
When requesting a correction, please mention this item's handle: RePEc:wly:mgtdec:v:29:y:2008:i:8:p:619-627. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.