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Market Structure and the Direction of Technological Change

Author

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  • Matthew Mitchell

    (Department of Economics University of Iowa)

  • Andy Skrzypacz

Abstract

We study a model where innovation comes in two varieties: improvements on existing products, and new products that expand the scope of a technology. We make this distinction in order to highlight how market structure can determine not only the quantity of innovation but also its direction. We study two market structures. The first is the canonical one from the endogenous growth literature, where innovations can be developed by anyone, and developers market their own innovations. We then consider a more concentrated industry, where all innovation and pricing for a given technology is monopolized. We study the implications of the different market structures for both types of innovation, focusing on differences they induce in the direction of technological change. We apply our model model to the case of a hardware/software technology and analyze which market structure offers greater profits to a monopolist who can monopolize either hardware or software. We compare social welfare across the market structures, and discuss whether one type of innovation should be subsidized over another

Suggested Citation

  • Matthew Mitchell & Andy Skrzypacz, 2006. "Market Structure and the Direction of Technological Change," 2006 Meeting Papers 422, Society for Economic Dynamics.
    • Handle: RePEc:red:sed006:422
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    References listed on IDEAS

    as
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    Cited by:

    1. Shi Qi, 2008. "Advertising, Entry Deterrence, and Industry Innovation," Working Papers 2008-1, University of Minnesota, Department of Economics, revised 03 2008.
    2. Shi Qi, 2008. "Advertising, Entry Deterrence, and Industry Innovation," Levine's Working Paper Archive 122247000000002137, David K. Levine.
    3. Qi, Shi, 2019. "Advertising, industry innovation, and entry deterrence," International Journal of Industrial Organization, Elsevier, vol. 65(C), pages 30-50.

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    More about this item

    Keywords

    Market Strucuture; Innovation;

    JEL classification:

    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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