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Dynamic Hotelling Monopoly with Product Development


  • L. Lambertini


I characterise R&D investment in product innovation of a profit-seeking monopolist versus that of a social planner in a spatial market, under either partial or full market coverage. Under partial coverage, the steady state product design is the outcome of the trade off between the incentive to locate as close as possible to the middle of the preference space, and the incentive to save upon R&D costs. The planner does not produce the variety preferred by the average consumer, in situations where the R&D investment is too costly. This result is reinforced under full market coverage, where the planner’s incentive to innovate is always weaker than the monopolist’s, and the planner produces the average (and median) consumer’s preferred variety if and only if the rental price of capital is nil.

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  • L. Lambertini, 2001. "Dynamic Hotelling Monopoly with Product Development," Working Papers 399, Dipartimento Scienze Economiche, Universita' di Bologna.
  • Handle: RePEc:bol:bodewp:399

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    References listed on IDEAS

    1. Giacomo Bonanno, 1987. "Location Choice, Product Proliferation and Entry Deterrence," Review of Economic Studies, Oxford University Press, vol. 54(1), pages 37-45.
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    4. Gul, Faruk & Sonnenschein, Hugo & Wilson, Robert, 1986. "Foundations of dynamic monopoly and the coase conjecture," Journal of Economic Theory, Elsevier, vol. 39(1), pages 155-190, June.
    5. Eric Maskin & John Riley, 1984. "Monopoly with Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 171-196, Summer.
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    7. Gustav Feichtinger & Richard F. Hartl & Suresh P. Sethi, 1994. "Dynamic Optimal Control Models in Advertising: Recent Developments," Management Science, INFORMS, vol. 40(2), pages 195-226, February.
    8. Jaskold Gabszewicz, Jean & Shaked, Avner & Sutton, John & Thisse, Jacques-Francois, 1986. "Segmenting the market: The monopolist's optimal product mix," Journal of Economic Theory, Elsevier, vol. 39(2), pages 273-289, August.
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