Persistence of Monopoly, Innovation, and R&D Spillovers: Static versus Dynamic Analysis

Eugen Kovac, Viatcheslav Vinogradov and Kresimir Zigic ()

CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague

Abstract: We build a dynamic duopoly model that accounts for the empirical observation of monopoly persistence in the long run. More specifically, we analyze the conditions under which it is optimal for the market leader in an initially duopoly setup to undertake pre-emptive R&D investment ("strategic preda- tion") that eventually leads to the exit of the follower firm. The follower is assumed to benefit from the innovative activities of the leader through R&D spillovers. The novel feature of our approach is that we introduce an explicit dynamic model and contrast it with its static counterpart. Contrary to the predictions of the static model, strategic predation that leads to the persis- tence of monopoly is in general the optimal strategy to pursue in a dynamic framework when spillovers are not large.

Keywords: Dynamic duopoly; R&D spillovers; persistence of monopoly; strate- gic predation; accommodation. (search for similar items in EconPapers)
JEL-codes: L12 L13 L41 (search for similar items in EconPapers)
Date: 2007-01
New Economics Papers: this item is included in nep-bec, nep-com, nep-ind, nep-ino, nep-ipr, nep-pr~, nep-mic and nep-tid
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