Monopoly incentives to cost-reducing R&D
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.
|Date of creation:||08 Mar 2010|
|Date of revision:||27 Mar 2012|
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- Reinganum, Jennifer F, 1983.
"Uncertain Innovation and the Persistence of Monopoly,"
American Economic Review,
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- A. Michael Spence, 1975. "Monopoly, Quality, and Regulation," Bell Journal of Economics, The RAND Corporation, vol. 6(2), pages 417-429, Autumn.
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