University of Milan Department of Economics Working Paper No. 2010-06
10 Pages Posted: 30 Mar 2010 Last revised: 20 Dec 2013
Date Written: March 20, 2010
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.
Keywords: Monopoly, Research and Development, Innovation.
JEL Classification: L00, L10
Suggested Citation: Suggested Citation
Garella, Paolo G., Monopoly and Incentives to Cost-Reducing R&D (March 20, 2010). University of Milan Department of Economics Working Paper No. 2010-06. Available at SSRN: https://ssrn.com/abstract=1581456 or http://dx.doi.org/10.2139/ssrn.1581456