Quadratic Costs, Innovation and Welfare: The Role of Technology

Sugata Marjit and Suryaprakash Mishra

No 8524, CESifo Working Paper Series from CESifo

Abstract: In a Cournot oligopoly set up with constant marginal cost and linear demand, innovation is rewarding. In this paper we work with a Cournot oligopoly framework with increasing marginal cost and linear demand and show that innovation may not be rewarding. We endogenize the success probability of R&D and its response to the intensity of competition and specifically show that if the technology is already advanced and competition intensifies then firms wouldn’t innovate. The dynamic interaction we attempt to capture and explain is the one of technology with the possibility of innovation via the intensity of competition. We finally conclude that the intensity of competition and welfare may not have the usual (direct) relationship and suggest ‘monitored competition’, wherein initially (at initial stages of innovation) competition is encouraged and then (at later stages of innovation) curtailed, to encourage innovation and thus welfare, as a suitable policy measure. Thus, entry should be restricted in order to foster innovation while innovation itself encourages entry.

Keywords: quadratic costs; innovation; welfare; technology (search for similar items in EconPapers)
JEL-codes: L11 L13 L21 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-cse, nep-cta, nep-ind and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp8524.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_8524

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().