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Monopoly incentives to cost-reducing R&D


  • Paolo Giorgio GARELLA



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 Universit√† degli Studi di Milano, revised 27 Mar 2012.
  • Handle: RePEc:mil:wpdepa:2010-06

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    References listed on IDEAS

    1. Gilbert Richard J, 2006. "Competition and Innovation," Journal of Industrial Organization Education, De Gruyter, vol. 1(1), pages 1-23, December.
    2. Gilbert, Richard J & Newbery, David M G, 1982. "Preemptive Patenting and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 72(3), pages 514-526, June.
    3. Reinganum, Jennifer F, 1983. "Uncertain Innovation and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 73(4), pages 741-748, September.
    4. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, January.
    5. Xavier Vives, 2008. "INNOVATION AND COMPETITIVE PRESSURE -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 56(3), pages 419-469, December.
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    More about this item


    Monopoly; Research and Development; Innovation;

    JEL classification:

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


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