Title: Innovation, market structure and the holdup problem: investment incentives and coordination
Abstract: I analyze the innovation incentives under monopoly and duopoly provision of horizontally differentiated products purchased via bilateral negotiations, integrating the market structure and innovation literature with the holdup literature. I show that competition can improve local incentives for non-contractible investment. Because innovation levels are generally strategic substitutes, however, there can be multiple duopoly equilibria. In some circumstances, monopoly can provide a coordination device that can lead to greater expected welfare despite inferior local innovation incentives. The conditions for this to be the case, however, are quite restrictive.
Publication Year: 2004
Publication Date: 2004-05-01
Language: en
Type: article
Indexed In: ['crossref']
Access and Citation
Cited By Count: 5
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