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Market Power and Growth through Vertical and Horizontal Competition

Listed author(s):
  • Gilad Sorek

I study the implications of innovators' market power to growth and welfare in a two-R&D-sector economy. In this framework either vertical or horizontal competition is binding in the price setting stage, depending on the model parameters and the implemented market-power policy. I consider two alternative policies that are commonly, yet separately, used in the literature to constraint innovators' market power: patent lagging-breadth protection and direct price controls. I show that (a) the alternative policies may have non-monotonic and contradicting effects on growth (b) unconstrained market power may yields either excessive or insufficient growth compared with social optimum and (c) the social optimum can be achieved by reducing innovators market power with the proper policy instrument, along with a corresponding flat rate R&D-subsidy.

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File URL: http://cla.auburn.edu/econwp/Archives/2017/2017-01.pdf
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Paper provided by Department of Economics, Auburn University in its series Auburn Economics Working Paper Series with number auwp2017-01.

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Date of creation: Apr 2017
Handle: RePEc:abn:wpaper:auwp2017-01
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Web page: http://cla.auburn.edu/economics/

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