Monday, January 31, 2011

Monopoly Innovation and Welfare Effects

Posted by D. Daniel Sokol

Shuntian Yao, Nanyang Technological University (NTU) - Centre for Research in Financial Services (CREFS) and Lydia L. Gan, Department of Economics and Finance, School of Business, Medical Tourism Research Center address Monopoly Innovation and Welfare Effects.

ABSTRACT: In this paper we study the welfare effect of a monopoly innovation. Unlike many partial equilibrium models carried out in previous studies, general equilibrium models with non-price-taking behavior are constructed and analyzed in greater detail. We discover that technical innovation carried out by a monopolist could significantly increase the social welfare. We conclude that, in general, the criticism against monopoly innovation based on its increased deadweight loss is less accurate than previously postulated by many studies.

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