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Persistence of Monopoly, Innovation, and R&D Spillovers: Static versus Dynamic Analysis

Author

Listed:
  • Eugen Kovac
  • Viatcheslav Vinogradov
  • Kresimir Zigic

Abstract

We build a dynamic duopoly model that accounts for the empirical observation of monopoly persistence in the long run. More specifically, we analyze the conditions under which it is optimal for the market leader in an initially duopoly setup to undertake pre-emptive R&D investment ("strategic preda- tion") that eventually leads to the exit of the follower firm. The follower is assumed to benefit from the innovative activities of the leader through R&D spillovers. The novel feature of our approach is that we introduce an explicit dynamic model and contrast it with its static counterpart. Contrary to the predictions of the static model, strategic predation that leads to the persis- tence of monopoly is in general the optimal strategy to pursue in a dynamic framework when spillovers are not large.

Suggested Citation

  • Eugen Kovac & Viatcheslav Vinogradov & Kresimir Zigic, 2007. "Persistence of Monopoly, Innovation, and R&D Spillovers: Static versus Dynamic Analysis," CERGE-EI Working Papers wp316, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
  • Handle: RePEc:cer:papers:wp316
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    File URL: http://www.cerge-ei.cz/pdf/wp/Wp316.pdf
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    References listed on IDEAS

    as
    1. Carlin Wendy & Schaffer Mark & Seabright Paul, 2004. "A Minimum of Rivalry: Evidence from Transition Economies on the Importance of Competition for Innovation and Growth," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(1), pages 1-45, September.
    2. Federico Etro, 2006. "Aggressive leaders," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 146-154, March.
    3. Federico Etro, 2004. "Innovation by leaders," Economic Journal, Royal Economic Society, vol. 114(495), pages 281-303, April.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Dynamic duopoly; R&D spillovers; persistence of monopoly; strate- gic predation; accommodation.;

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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