EconPapers    
Economics at your fingertips  
 

Monopoly and the Incentive to Innovate When Adoption Involves Switchover Disruptions

Thomas Holmes (), David Levine and James Schmitz

No 13864, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: When considering the incentive of a monopolist to adopt an innovation, the textbook model assumes that it can instantaneously and seamlessly introduce the new technology. In fact, firms often face major problems in integrating new technologies. In some cases, firms have to (temporarily) produce at levels substantially below capacity upon adoption. We call such phenomena switchover disruptions, and present extensive evidence on them. If firms face switchover disruptions, then they may temporarily lose some unit sales upon adoption. If the firm loses unit sales, then a cost of adoption is the foregone rents on the sales of those units. Hence, greater market power will mean higher prices on those lost units of output, and hence a reduced incentive to innovate. We introduce switchover disruptions into some standard models in the literature, show they can overturn some famous results, and then show they can help explain evidence that firms in more competitive environments are more likely to adopt technologies and increase productivity.

JEL-codes: L10 L12 (search for similar items in EconPapers)
Date: 2008-03
New Economics Papers: this item is included in nep-com, nep-ind, nep-ino, nep-mic and nep-tid
Note: PR
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

Published as Holmes, Thomas J., David K. Levine, and James A. Schmitz. 2012. "Monopoly and the Incentive to Innovate When Adoption Involves Switchover Disruptions." American Economic Journal: Microeconomics, 4(3): 1-33. DOI: 10.1257/mic.4.3.1

Downloads: (external link)
http://www.nber.org/papers/w13864.pdf (application/pdf)

Related works:
Journal Article: Monopoly and the Incentive to Innovate When Adoption Involves Switchover Disruptions (2012) 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
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:nbr:nberwo:13864

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w13864

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2024-04-04
Handle: RePEc:nbr:nberwo:13864