Market Power and Growth through Vertical and Horizontal Competition

Gilad Sorek

No auwp2017-01, Auburn Economics Working Paper Series from Department of Economics, Auburn University

Abstract: I study the implications of innovators' market power to growth and welfare in a two-R&D-sector economy. In this framework either vertical or horizontal competition is binding in the price setting stage, depending on the model parameters and the implemented market-power policy. I consider two alternative policies that are commonly, yet separately, used in the literature to constraint innovators' market power: patent lagging-breadth protection and direct price controls. I show that (a) the alternative policies may have non-monotonic and contradicting effects on growth (b) unconstrained market power may yields either excessive or insufficient growth compared with social optimum and (c) the social optimum can be achieved by reducing innovators market power with the proper policy instrument, along with a corresponding flat rate R&D-subsidy.

Keywords: Patent Breadth; Price control; Two-R&D-Sector; Growth (search for similar items in EconPapers)
JEL-codes: O31 O40 (search for similar items in EconPapers)
Date: 2017-04
New Economics Papers: this item is included in nep-com, nep-ind and nep-ino
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