Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/223596
Authors: 
Marjit, Sugata
Mishra, Suryaprakash
Year of Publication: 
2020
Series/Report no.: 
CESifo Working Paper No. 8524
Abstract: 
In a Cournot oligopoly set up with constant marginal cost and linear demand, innovation is rewarding. In this paper we work with a Cournot oligopoly framework with increasing marginal cost and linear demand and show that innovation may not be rewarding. We endogenize the success probability of R&D and its response to the intensity of competition and specifically show that if the technology is already advanced and competition intensifies then firms wouldn’t innovate. The dynamic interaction we attempt to capture and explain is the one of technology with the possibility of innovation via the intensity of competition. We finally conclude that the intensity of competition and welfare may not have the usual (direct) relationship and suggest ‘monitored competition’, wherein initially (at initial stages of innovation) competition is encouraged and then (at later stages of innovation) curtailed, to encourage innovation and thus welfare, as a suitable policy measure. Thus, entry should be restricted in order to foster innovation while innovation itself encourages entry.
Subjects: 
quadratic costs
innovation
welfare
technology
JEL: 
L11
L13
L21
Document Type: 
Working Paper

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