Market Power Screens Willingness-to-Pay

32 Pages Posted: 16 Aug 2010 Last revised: 4 Sep 2012

See all articles by E. Glen Weyl

E. Glen Weyl

Microsoft Research New York City; RadicalxChange Foundation

Jean Tirole

University of Toulouse 1 - Industrial Economic Institute (IDEI); University of Toulouse 1 - Groupe de Recherche en Economie Mathématique et Quantitative (GREMAQ); Centre for Economic Policy Research (CEPR)

Date Written: March 29, 2012

Abstract

What is the best way to reward innovation? While prizes avoid deadweight loss, intellectual property selects high social surplus projects. Optimal innovation policy thus trades off the ex-ante screening benefit and the ex-post distortion. It solves a multidimensional screening problem in the private information held by the innovator: research cost, quality and market size of the innovation. The appropriate degree of market power is never full monopoly pricing and is determined by measurable market characteristics, the inequality and elasticity of innovation supply, making the analysis open to empirical calibration. The framework has applications beyond IP policy to the optimal pricing of platforms or the optimal procurement of public infrastructure.

Keywords: ntellectual property, market power, screening, stretch parametrization

JEL Classification: D40, D61, D82, L10, L40

Suggested Citation

Weyl, Eric Glen and Tirole, Jean, Market Power Screens Willingness-to-Pay (March 29, 2012). Quarterly Journal of Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1659449 or http://dx.doi.org/10.2139/ssrn.1659449

Eric Glen Weyl (Contact Author)

Microsoft Research New York City ( email )

641 Avenue of the Americas
7th Floor
New York, NY 10011
United States
8579984513 (Phone)

HOME PAGE: http://www.glenweyl.com

RadicalxChange Foundation ( email )

HOME PAGE: http://www.radicalxchange.org

Jean Tirole

University of Toulouse 1 - Industrial Economic Institute (IDEI) ( email )

Place Anatole France
21 Allees de Brienne
F-31042 Toulouse Cedex
France
+33 5 61 12 8642 (Phone)
+33 5 61 12 8637 (Fax)

University of Toulouse 1 - Groupe de Recherche en Economie Mathématique et Quantitative (GREMAQ) ( email )

Manufacture des Tabacs
21 Allees de Brienne
Toulouse, 31000
France

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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