IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Income inequalities and innovation by incumbents

Listed author(s):
  • Helene LATZER

    ()

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

Our paper presents a new rationale for innovation by incumbents. We show that the possibility to price-discriminate between consumers having different levels of wealth is a sufficient incentive for the industry leader to overcome the Arrow (1962) effect and keep investing in R&D, even in the absence of any incumbent advantage in the R&D field. We model an economy composed of two distinct groups of consumers, differing in their wealth endowment and subject to non-homothetic preferences, obtained through unit consumption of the quality good. We demonstrate that in such a framework, there exists a unique steady state equilibrium with positive innovation rates of both incumbents and challengers. Beyond its novelty, this result then also allows us to analyze the effect of the extent of income inequalities on both the challenger and incumbent innovation rates, and by extension on the economic growth rate. We demonstrate that a higher share of the population being poor is detrimental to the rate of economic growth, while a redistribution of wealth from rich to poor consumers increases the challenger innovation rate and has ambiguous effects on the incumbent’s investment in R&D.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://sites.uclouvain.be/econ/DP/IRES/2010002.pdf
Download Restriction: no

Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 2010002.

as
in new window

Length: 30
Date of creation: 02 Jan 2010
Handle: RePEc:ctl:louvir:2010002
Contact details of provider: Postal:
Place Montesquieu 3, 1348 Louvain-la-Neuve (Belgium)

Fax: +32 10473945
Web page: https://uclouvain.be/en/research-institutes/immaq/ires
Email:


More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

This item is featured on the following reading lists or Wikipedia pages:

  1. Economic Logic blog

When requesting a correction, please mention this item's handle: RePEc:ctl:louvir:2010002. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anne DAVISTER-LOGIST)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.