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Market Structure and Schumpeterian Growth


  • Kerk Phillips & Val Lambson


We present a discrete-time version of an otherwise standard Schumpeterian growth model. Discrete time exhibits two important differences from continuous time. First, the probability of successful innovation cannot be homogeneous of degree one in inputs. A natural R&D analogue to constant returns to scale implies a Poisson production function with diminishing marginal product of inputs. Second, R&D firms sometimes innovate simultaneously. The resulting market conduct is critical. We consider both Bertrand competition and collusion among successful innovators. Surprisingly, the industry demand for R&D inputs does not depend on the number of firms in the R&D sector if Bertrand competition ensues following ties. In contrast, demand for R&D inputs is higher if ties are expected to result in collusion. In general equilibrium, Bertrand competition leads to random switching between monopoly and competitive production. Under collusion, production is always at the monopoly level, but there is faster growth. Numerical simulations suggest that this also leads to higher welfare.

Suggested Citation

  • Kerk Phillips & Val Lambson, 2004. "Market Structure and Schumpeterian Growth," Econometric Society 2004 Far Eastern Meetings 490, Econometric Society.
  • Handle: RePEc:ecm:feam04:490

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    References listed on IDEAS

    1. Phillips, Kerk L., 1993. "Quality ladders, growth, and R&D: an assessment from U.S. industry," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 38(1), pages 239-273, June.
    2. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-351, March.
    3. Gene M. Grossman & Elhanan Helpman, 1991. "Quality Ladders in the Theory of Growth," Review of Economic Studies, Oxford University Press, vol. 58(1), pages 43-61.
    4. Deissenberg, Christophe & Nyssen, Jules, 1998. "A simple model of Schumpeterian growth with complex dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 22(2), pages 247-266, February.
    5. Hall, Robert E, 1988. "The Relation between Price and Marginal Cost in U.S. Industry," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 921-947, October.
    6. Segerstrom, Paul S & Anant, T C A & Dinopoulos, Elias, 1990. "A Schumpeterian Model of the Product Life Cycle," American Economic Review, American Economic Association, vol. 80(5), pages 1077-1091, December.
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    Cited by:

    1. Ryo Horii & Tatsuro Iwaisako, 2007. "Economic Growth with Imperfect Protection of Intellectual Property Rights," Journal of Economics, Springer, vol. 90(1), pages 45-85, January.
    2. Gómez, Manuel A., 2011. "Duplication externalities in an endogenous growth model with physical capital, human capital, and R&D," Economic Modelling, Elsevier, vol. 28(1), pages 181-187.
    3. Manuel A. Gómez, 2012. "Equilibrium Dynamics Of An Endogenous Growth Model With An Erosion Effect And Duplication In R&D," Manchester School, University of Manchester, vol. 80(6), pages 700-717, December.
    4. repec:eee:ecolet:v:156:y:2017:i:c:p:88-91 is not listed on IDEAS
    5. Filip Rozsypal, 2015. "Schumpeterian business cycles," 2015 Meeting Papers 320, Society for Economic Dynamics.
    6. Pu-yan Nie, 2012. "Maintenance Commitments for Monopolized Goods," Prague Economic Papers, University of Economics, Prague, vol. 2012(1), pages 18-29.
    7. Nie, Pu-yan, 2009. "Commitment for storable goods under vertical integration," Economic Modelling, Elsevier, vol. 26(2), pages 414-417, March.
    8. Cecilia García-Peñalosa & Jean-François Wen, 2008. "Redistribution and entrepreneurship with Schumpeterian growth," Journal of Economic Growth, Springer, vol. 13(1), pages 57-80, March.
    9. Gómez, Manuel A. & Sequeira, Tiago N., 2013. "Optimal R&D subsidies in a model with physical capital, human capital and varieties," Economic Modelling, Elsevier, vol. 30(C), pages 217-224.
    10. Jean-François Wen & Cecilia García-Peñalosa, 2004. "Redistribution and Occupational Choice in a Schumpeterian Growth Model," CESifo Working Paper Series 1323, CESifo Group Munich.

    More about this item


    growth; market structure;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • 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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