Cost structures, innovation and welfare in monopoly

Suryaprakash Mishra

European Competition Journal, 2022, vol. 18, issue 3, 558-566

Abstract: This paper, concerning cost structures and innovation in monopoly and the resulting welfare, has counter-intuitive results. We consider linear demand and two cases of cost structures namely constant marginal cost (henceforth CMC) and increasing marginal cost (henceforth IMC) in monopoly, and show that innovation is rewarding in both situations. From the regulator’s perspective, in absence of any innovation or in case of equal innovation in both cases, a monopolist with an IMC may be preferred as against the one with a CMC.

Date: 2022
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DOI: 10.1080/17441056.2022.2034330

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