Wednesday, January 20, 2010
Technological Leadership and Persistence of Monopoly under Endogenous Entry: Static versus Dynamic Analysis
Posted by D. Daniel Sokol
Eugen Kovac (Department of Economics, University of Bonn, Germany) Viatcheslav Vinogradov (CERGE-EI), Krešimir Žigiæ (CERGE-EI) explainTechnological Leadership and Persistence of Monopoly under Endogenous Entry: Static versus Dynamic Analysis.
ABSTRACT: We build a dynamic oligopoly model with endogenous entry in which a particular firm (leader) invests in an innovation process, facing the subsequent entry of other firms (followers). We identify conditions that make it optimal for the leader in the initial oligopoly situation to undertake pre-emptive R&D investment (strategic predation) eventually resulting in the elimination of all followers. Compared to a static model, the dynamic one provides new insights into the leader’s intertemporal investment choice, its optimal decision making, and the dynamics of the market structure over time. We also contrast the leader’s investment decisions with those of the social planner.