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Market Power and Growth through Vertical and Horizontal Competition

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  • Gilad Sorek

Abstract

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.

Suggested Citation

  • Gilad Sorek, 2017. "Market Power and Growth through Vertical and Horizontal Competition," Auburn Economics Working Paper Series auwp2017-01, Department of Economics, Auburn University.
  • Handle: RePEc:abn:wpaper:auwp2017-01
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    File URL: http://cla.auburn.edu/econwp/Archives/2017/2017-01.pdf
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    Keywords

    Patent Breadth; Price control; Two-R&D-Sector; Growth;

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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