Innovation, Market Structure and the Holdup Problem: Investment Incentives and Coordination

39 Pages Posted: 23 Oct 2001

See all articles by Abraham L. Wickelgren

Abraham L. Wickelgren

University of Texas at Austin - School of Law; University of Texas at Austin - Center for Law, Business, and Economics

Abstract

I analyze the innovation incentives under monopoly and duopoly provision of horizontally differentiated products purchased via bilateral negotiations, integrating the market structure and innovation literature with the holdup literature. I show that competition can improve local incentives for non-contractible investment. Because innovation levels are generally strategic substitutes, however, there can be multiple duopoly equilibria. In some circumstances, monopoly can provide a coordination device that can lead to greater expected welfare despite inferior local innovation incentives. The conditions for this to be the case, however, are quite restrictive.

Keywords: Holdup, Market Structure, Innovation Incentives

JEL Classification: D21, L10

Suggested Citation

Wickelgren, Abraham L., Innovation, Market Structure and the Holdup Problem: Investment Incentives and Coordination. Available at SSRN: https://ssrn.com/abstract=287061 or http://dx.doi.org/10.2139/ssrn.287061

Abraham L. Wickelgren (Contact Author)

University of Texas at Austin - School of Law ( email )

727 East Dean Keeton Street
Austin, TX 78705
United States

University of Texas at Austin - Center for Law, Business, and Economics

Austin, TX 78712
United States

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