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Product Innovation Incentives: Monopoly vs. Competition

Yongmin Chen and Marius Schwartz
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Yongmin Chen and Marius Schwartz: Department of Economics, Georgetown University, http://econ.georgetown.edu/

Authors registered in the RePEc Author Service: Yongmin Chen () and Marius Schwartz

Working Papers from Georgetown University, Department of Economics

Abstract: Arrow (1962) showed that a secure monopolist (unconcerned with preemption) has a weaker incentive than would a competitive firm to invest in a patentable process innovation. This paper shows that the ranking can be reversed for product innovations. Only the innovator sells the new product, a differentiated substitute for the old. Under alternative market structures considered, the old product is sold only by that same firm (two-product monopoly), only by a different firm (post-innovation duopoly), or in perfect competition. In an asymmetric Hotelling model, the innovation incentive under monopoly is greater than under duopoly if and only if the new product has the higher quality, and is always greater than under perfect competition.

JEL-codes: D4 L1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-com, nep-cse, nep-ent, nep-ino, nep-mic and nep-tid
Date: 2009-04-02
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Journal Article: Product Innovation Incentives: Monopoly vs. Competition (2013) Downloads
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