Intra-Sector and Inter-Sector Competition in a Model of Growth
19 Pages Posted: 23 Feb 2005
Date Written: January 2005
The patents power is threefold: first, they are important to state the property right's appropriability of an invention; second, they are necessary in order to secure financing for starting a new venture; third, they are fundamental in order to recoup the positive R&D cost investment. The main difficulty, in preventing innovation's unauthorized uses, is in the establishment of ranges and contexts about patents applicability. Noting the legal system's imperfections, we are in a position to consider an economy with two levels of competition under different market structures: the inter-sector monopolistic competition and the intra-sector Cournot oligopoly. The explicit consideration of strategic interaction in a model of endogenous growth produces interesting results. Considering the sectorial market share as the indicator of patent system enforcement, I find that growth takes place, if and only if, there are some property rights of private knowledge developed by R&D activities. In turn, the perfectionism in the patent system means a low degree of competition among firms. Its influence on the growth rate goes in a single unambiguous direction. When the market is highly competitive few resources are available for R&D, so the growth rate goes down.
Keywords: Product Differentiation, Endogenous Growth, Market Structure, R&D, Strategic Interaction
JEL Classification: E10, L13, L16, O31, O40
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