Monopoly and Incentives to Cost-Reducing R&D
Paolo G. Garella
University of Milan - Dipartimento di Scienze Economiche, Aziendali e Statistiche
March 20, 2010
University of Milan Department of Economics Working Paper No. 2010-06
It is here shown that there exist cost innovations for which a monopolist has a higher incentive to invest than a social planner. This unveils the limits of the claim, based on Arrow (1959), that a monopoly always has a lower incentive to innovate than a social planner and therefore than socially desirable. Contrary to previous results, the comparison of incentives may also depend upon the demand function. Finally, only under a restricted domain of analysis, a rule for comparing the monopoly and the social planner incentives is derived.
Number of Pages in PDF File: 10
Keywords: Monopoly, Research and Development, Innovation.
JEL Classification: L00, L10
Date posted: March 30, 2010 ; Last revised: December 20, 2013