Quality Improvement and Process Innovation in Monopoly: A Dynamic Analysis

Luca Lambertini (luca.lambertini@unibo.it) and Raimondello Orsini (raimondello.orsini@unibo.it)
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Raimondello Orsini: Department of Economics, University of Bologna, Italy

Working Paper series from Rimini Centre for Economic Analysis

Abstract: We investigate the R&D portfolio of a monopolist investing in cost-reducing and quality enhancing R&D. Incentives along the two directions are inversely related to the size of market demand, and independent of each other. The stability analysis shows the existence of a unique stable steady state equilibrium, which is a saddle point. Finally, we show that the monopolist undersupplies product quality as compared to the social optimum, while its investment in the abatement of marginal cost is socially efficient.

Date: 2015-03
New Economics Papers: this item is included in nep-com and nep-ino
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Citations: View citations in EconPapers (16)

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