Details
| Original language | English |
|---|---|
| Pages (from-to) | 1011-1036 |
| Number of pages | 26 |
| Journal | European economic review |
| Volume | 47 |
| Issue number | 6 |
| Early online date | 17 Dec 2002 |
| Publication status | Published - Dec 2003 |
| Externally published | Yes |
Abstract
This paper investigates the efficiency of innovation investments in a durable-goods monopoly when a potential entrant threatens to innovate as well. We show that the durability of the good endows the monopolist with the power to discourage rival innovation since current sales alter the demand for a new generation of the good. The equilibrium is therefore determined not only by the incentive for intertemporal price discrimination in durable-goods monopoly, but also by the incumbent's concern for maintaining the technological leadership. We demonstrate that entry deterrence followed by no innovation always implies underinvestment in innovation.
Keywords
- Coasian dynamics, Durable-goods monopoly, Entry deterrence, Innovation
ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)
- Finance
- Economics, Econometrics and Finance(all)
- Economics and Econometrics
Cite this
- Standard
- Harvard
- Apa
- Vancouver
- BibTeX
- RIS
In: European economic review, Vol. 47, No. 6, 12.2003, p. 1011-1036.
Research output: Contribution to journal › Article › Research › peer review
}
TY - JOUR
T1 - Entry deterrence and innovation in durable-goods monopoly
AU - Hoppe, Heidrum C.
AU - Lee, In Ho
PY - 2003/12
Y1 - 2003/12
N2 - This paper investigates the efficiency of innovation investments in a durable-goods monopoly when a potential entrant threatens to innovate as well. We show that the durability of the good endows the monopolist with the power to discourage rival innovation since current sales alter the demand for a new generation of the good. The equilibrium is therefore determined not only by the incentive for intertemporal price discrimination in durable-goods monopoly, but also by the incumbent's concern for maintaining the technological leadership. We demonstrate that entry deterrence followed by no innovation always implies underinvestment in innovation.
AB - This paper investigates the efficiency of innovation investments in a durable-goods monopoly when a potential entrant threatens to innovate as well. We show that the durability of the good endows the monopolist with the power to discourage rival innovation since current sales alter the demand for a new generation of the good. The equilibrium is therefore determined not only by the incentive for intertemporal price discrimination in durable-goods monopoly, but also by the incumbent's concern for maintaining the technological leadership. We demonstrate that entry deterrence followed by no innovation always implies underinvestment in innovation.
KW - Coasian dynamics
KW - Durable-goods monopoly
KW - Entry deterrence
KW - Innovation
UR - http://www.scopus.com/inward/record.url?scp=0242468361&partnerID=8YFLogxK
U2 - 10.1016/S0014-2921(02)00231-3
DO - 10.1016/S0014-2921(02)00231-3
M3 - Article
AN - SCOPUS:0242468361
VL - 47
SP - 1011
EP - 1036
JO - European economic review
JF - European economic review
SN - 0014-2921
IS - 6
ER -