Can a larger market foster R&D under monopolistic competition with variable mark-ups?

Igor Bykadorov, Sergey Kokovin

Research output: Contribution to journalArticlepeer-review

10 Citations (Scopus)

Abstract

We study monopolistic competition with symmetric directly additive preferences (generating variable mark-ups) and an endogenous technology choice. Each firm chooses an investment in R&D to decrease its marginal cost. We prove that the equilibrium R&D investment increases with market size (a larger population or trade) only if the price-elasticity of demand is an increasing function. Together with the output levels, such equilibrium investments may be socially excessive or insufficient, depending on whether the elasticity of the subutility is increasing or decreasing. The main implication is that opening up to free trade can foster R&D through variable mark-ups.

Original languageEnglish
Pages (from-to)663-674
Number of pages12
JournalResearch in Economics
Volume71
Issue number4
DOIs
Publication statusPublished - 1 Dec 2017

Keywords

  • Monopolistic competition
  • R&D investments
  • Trade and efficiency
  • Trade gains
  • Variable mark-ups
  • ELASTICITY
  • TRADE
  • IMPACT
  • PRODUCTIVITY

OECD FOS+WOS

  • 5.02.GY ECONOMICS

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