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Monopoly innovation and welfare effects

  • Yao, Shuntian
  • Gan, Lydia
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    In this paper we study the welfare effect of a monopoly innovation. Unlike many partial equilibrium models carried out in previous studies, general equilibrium models with non-price-taking behavior are constructed and analyzed in greater detail. We discover that technical innovation carried out by a monopolist could significantly increase the social welfare. We conclude that, in general, the criticism against monopoly innovation based on its increased deadweight loss is less accurate than previously postulated by many studies.

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    File URL: http://www.economics-ejournal.org/economics/discussionpapers/2010-10
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    File URL: http://econstor.eu/bitstream/10419/30021/1/618931082.pdf
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    Paper provided by Kiel Institute for the World Economy in its series Economics Discussion Papers with number 2010-10.

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    Date of creation: 2010
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    Handle: RePEc:zbw:ifwedp:201010
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    1. Cowling, Keith & Mueller, Dennis C, 1978. "The Social Costs of Monopoly Power," Economic Journal, Royal Economic Society, vol. 88(352), pages 727-48, December.
    2. Hansen, Claus Thustrup, 1999. "Second-best antitrust in general equilibrium: a special case," Economics Letters, Elsevier, vol. 63(2), pages 193-199, May.
    3. Williamson, Oliver E, 1969. "Allocative Efficiency and the Limits of Antitrust," American Economic Review, American Economic Association, vol. 59(2), pages 105-18, May.
    4. Yoon-Ho Alex Lee & Donald J. Brown, 2005. "Competition, Consumer Welfare, and the Social Cost of Monopoly," Cowles Foundation Discussion Papers 1528, Cowles Foundation for Research in Economics, Yale University.
    5. Hill, Martyn & Waterson, Michael, 1983. "Labor-managed Cournot oligopoly and industry output," Journal of Comparative Economics, Elsevier, vol. 7(1), pages 43-51, March.
    6. Littlechild, S C, 1981. "Misleading Calculations of the Social Costs of Monopoly Power," Economic Journal, Royal Economic Society, vol. 91(362), pages 348-63, June.
    7. Kay, J. A., 1983. "A general equilibrium approach to the measurement of monopoly welfare loss," International Journal of Industrial Organization, Elsevier, vol. 1(4), pages 317-331, December.
    8. David Schwartzman, 1960. "The Burden of Monopoly," Journal of Political Economy, University of Chicago Press, vol. 68, pages 627.
    9. Delbono, Flavio & Denicolo, Vincenzo, 1991. "Incentives to Innovate in a Cournot Oligopoly," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 951-61, August.
    10. Jenny, Frederic & Weber, Andre-Paul, 1983. "Aggregate Welfare Loss Due to Monopoly Power in the French Economy: Some Tentative Estimates," Journal of Industrial Economics, Wiley Blackwell, vol. 32(2), pages 113-30, December.
    11. Geroski, P A, 1990. "Innovation, Technological Opportunity, and Market Structure," Oxford Economic Papers, Oxford University Press, vol. 42(3), pages 586-602, July.
    12. Neary, Hugh M., 1984. ""Labor-managed cournot oligopoly and industry output": A comment," Journal of Comparative Economics, Elsevier, vol. 8(3), pages 322-327, September.
    13. Posner, Richard A, 1975. "The Social Costs of Monopoly and Regulation," Journal of Political Economy, University of Chicago Press, vol. 83(4), pages 807-27, August.
    14. Williamson, Oliver E, 1969. "Economies as an Antitrust Defense: Reply," American Economic Review, American Economic Association, vol. 59(5), pages 954-59, December.
    15. Michael Reksulak & William F. Shughart & Robert D. Tollison, 2008. "Innovation and the opportunity cost of monopoly," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 29(8), pages 619-627.
    16. Bergson, Abram, 1973. "On Monopoly Welfare Losses," American Economic Review, American Economic Association, vol. 63(5), pages 853-70, December.
    17. Neary, Hugh M., 1992. "Some general equilibrium aspects of a labor-managed economy with monopoly elements," Journal of Comparative Economics, Elsevier, vol. 16(4), pages 633-654, December.
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