A BEJM Contributions article.

Abstract

This paper shows that standard Schumpeterian theory does not imply that the incumbent monopolist has too little incentive to carry out R&D aimed at displacing its own product. If the patent holder is rational as is any other R&D investor, she will know that in equilibrium her patent’s obsolescence shall not be affected by her own R&D investment, because all the R&D firms operate under perfect competition and constant returns to scale at the private level. This reconciles Schumpeterian theory with the empirical evidence on innovation by incumbents. It is proved that the usual macroeconomic implications maintain their validity.

Submitted: March 18, 2004 · Accepted: November 20, 2006 · Published: January 16, 2007

Recommended Citation

Cozzi, Guido (2007) "The Arrow Effect under Competitive R&D," The B.E. Journal of Macroeconomics: Vol. 7 : Iss. 1 (Contributions), Article 2.
Available at: http://www.bepress.com/bejm/vol7/iss1/art2