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Monopoly incentives to cost-reducing R&D

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  • Paolo Giorgio GARELLA

Abstract

It is here shown that there exist cost innovations for which a monopolist has a higher incentive to invest than a social planner. This unveils the limits of the claim, based on Arrow (1959), that a monopoly always has a lower incentive to innovate than a social planner and therefore than socially desirable. Contrary to previous results, the comparison of incentives may also depend upon the demand function. Finally, only under a restricted domain of analysis, a rule for comparing the monopoly and the social planner incentives is derived.

Suggested Citation

  • Paolo Giorgio GARELLA, 2010. "Monopoly incentives to cost-reducing R&D," Departmental Working Papers 2010-06, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano, revised 27 Mar 2012.
    • Handle: RePEc:mil:wpdepa:2010-06
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    References listed on IDEAS

    as
    1. Reinganum, Jennifer F, 1983. "Uncertain Innovation and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 73(4), pages 741-748, September.
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    Full references (including those not matched with items on IDEAS)

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    JEL classification:

    • L00 - Industrial Organization - - General - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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