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Technological Leadership and Persistence of Monopoly under Endogenous Entry: Static versus Dynamic Analysis

  • Eugen Kovac
  • Viatcheslav Vinogradov
  • Krešimir Žigiæ

We build a dynamic oligopoly model with endogenous entry in which a particular firm (leader) invests in an innovation process, facing the subsequent entry of other firms (followers). We identify conditions that make it optimal for the leader in the initial oligopoly situation to undertake pre-emptive R&D investment (strategic predation) eventually resulting in the elimination of all followers. Compared to a static model, the dynamic one provides new insights into the leader’s intertemporal investment choice, its optimal decision making, and the dynamics of the market structure over time. We also contrast the leader’s investment decisions with those of the social planner.

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Paper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number wp401.

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Date of creation: Dec 2009
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Handle: RePEc:cer:papers:wp401
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  1. Creane, Anthony & Konishi, Hideo, 2009. "The unilateral incentives for technology transfers: Predation (and deterrence) by proxy," International Journal of Industrial Organization, Elsevier, vol. 27(3), pages 379-389, May.
  2. Federico Etro, 2006. "Market Leaders and Industrial Policy," Working Papers 103, University of Milano-Bicocca, Department of Economics, revised Nov 2006.
  3. 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.
  4. Nisvan Erkal & Daniel Piccinin, 2009. "Welfare?Reducing Mergers in Differentiated Oligopolies with Free Entry," Department of Economics - Working Papers Series 1081, The University of Melbourne.
  5. Federico Etro, 2006. "Aggressive leaders," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 146-154, 03.
  6. Federico Etro, 2004. "Innovation by leaders," Economic Journal, Royal Economic Society, vol. 114(495), pages 281-303, 04.
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