
Contents
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1. Market Structure and Innovation 1. Market Structure and Innovation
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A Simple Model of Innovation A Simple Model of Innovation
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Monopoly Equilibrium Monopoly Equilibrium
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Duopoly Equilibrium Duopoly Equilibrium
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Comparison of Innovation with Monopoly and Duopoly Comparison of Innovation with Monopoly and Duopoly
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Comparison of Welfare under Monopoly and Duopoly Comparison of Welfare under Monopoly and Duopoly
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Perfect Spillovers Perfect Spillovers
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Extensions Extensions
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Some general Observations Some general Observations
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2. The Intensity of Competition and the Efficiency of Innovation 2. The Intensity of Competition and the Efficiency of Innovation
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3. Why More Competition in Patent Races May Not Spur a Faster Rate of Innovation 3. Why More Competition in Patent Races May Not Spur a Faster Rate of Innovation
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4. Schumpeterian Competition and Endogenous Market Structure 4. Schumpeterian Competition and Endogenous Market Structure
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The Domination of the Market at Each Moment of Time by a Single Enterprise The Domination of the Market at Each Moment of Time by a Single Enterprise
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The Temporary Nature of Monopoly Power The Temporary Nature of Monopoly Power
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Analytics Analytics
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Why Contestability Doesn’t Suffice to Ensure Innovation, Efficiency, or Zero Profits Why Contestability Doesn’t Suffice to Ensure Innovation, Efficiency, or Zero Profits
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Entry Deterrence Entry Deterrence
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Why Patent Races May Provide Only a Limited Spur to Innovation Why Patent Races May Provide Only a Limited Spur to Innovation
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Some Caveats on the Ability of a Dominant Firm to Perpetuate Dominance Some Caveats on the Ability of a Dominant Firm to Perpetuate Dominance
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5. Agency Issues and X-Inefficiency 5. Agency Issues and X-Inefficiency
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6. Concluding Comments 6. Concluding Comments
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Policy Implications Policy Implications
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Competition, Innovation, and Endogenous Market Structures Competition, Innovation, and Endogenous Market Structures
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Appendix A Impact of the Number of Firms on the Pace of Innovation in a Patent Race Appendix A Impact of the Number of Firms on the Pace of Innovation in a Patent Race
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Five Market Structure, Welfare, and Learning
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Published:June 2014
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Abstract
This chapter shows that the relationship between competition, innovation, and welfare in quite standard models of market interaction is far different than has been widely presumed. The first three sections explain whether and the circumstances under which the level of innovation with monopoly is greater than that in more competitive environments, even apart from imperfections in risk and capital markets. The final section examines the flaws in Joseph Schumpeter's theory of market structure, i.e. that at any one moment of time the market would be dominated by a single firm but that there would be a succession of monopolists. It shows why the monopoly power that Schumpeter seems to extol may be more persistent than he thought and why Schumpeterian competition may not suffice to lead to a dynamic, learning economy, or at least leads to an economy which is not as dynamic as it could or should be.
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