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Monopoly and the Incentive to Innovate When Adoption Involves Switchover Disruptions

Thomas J. Holmes, David Levine and James A. Schmitz

American Economic Journal: Microeconomics, 2012, vol. 4, issue 3, 1-33

Abstract: Arrow (1962) argued that since a monopoly restricts output relative to a competitive industry, it would be less willing to pay a fixed cost to adopt a new technology. We develop a new theory of why a monopolistic industry innovates less. Firms often face major problems in integrating new technologies. In some cases, upon adoption of technology, firms must temporarily reduce output. We call such problems switchover disruptions. A cost of adoption, then, is the forgone rents on the sales of lost or delayed production, and these opportunity costs are larger the higher the price on those lost units. (JEL D21, D42, L12, L14, O32, O33)

JEL-codes: D21 D42 L12 L14 O32 O33 (search for similar items in EconPapers)
Date: 2012
Note: DOI: 10.1257/mic.4.3.1
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Citations: View citations in EconPapers (27)

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Working Paper: Monopoly and the Incentive to Innovate When Adoption Involves Switchover Disruptions (2008) Downloads
Working Paper: Monopoly and the incentive to innovate when adoption involves switchover disruptions (2008) Downloads
Working Paper: Monopoly and the Incentive to Innovate When Adoption Involves Switchover Disruptions (2008) Downloads
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