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Persistence of Monopoly and Research Specialization

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  • Philipp Weinschenk

    (Max Planck Institute for Research on Collective Goods)

Abstract

We examine the persistence of monopolies in markets with innovations when the outcome of research is uncertain. We show that for low success probabilities of research, the incumbent can seldom preempt the potential entrant. Then the efficiency effect outweighs the replacement effect. It is vice versa for high probabilities. Moreover, the incumbent specializes in “safe” research and the potential entrant in “risky” research. We also show that the probability of entry has an inverted U-shape in the success probability. Since even at the peak entry is rather unlikely, the persistence of the monopoly is high.

Suggested Citation

  • Philipp Weinschenk, 2009. "Persistence of Monopoly and Research Specialization," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2009_11, Max Planck Institute for Research on Collective Goods.
    • Handle: RePEc:mpg:wpaper:2009_11
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    References listed on IDEAS

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    Cited by:

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    2. Traxler, Christian, 2012. "Majority voting and the welfare implications of tax avoidance," Journal of Public Economics, Elsevier, vol. 96(1), pages 1-9.

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    More about this item

    Keywords

    Persistence of Monopoly; Efficiency Effect; Replacement Effect; Stochastic Innovations;
    All these keywords.

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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