Discussion Paper

No. 2010-10 | February 16, 2010
Monopoly Innovation and Welfare Effects

Abstract

In this paper we study the welfare effect of a monopoly innovation. Unlike many partial equilibrium models carried out in previous studies, general equilibrium models with non-price-taking behavior are constructed and analyzed in greater detail. We discover that technical innovation carried out by a monopolist could significantly increase the social welfare. We conclude that, in general, the criticism against monopoly innovation based on its increased deadweight loss is less accurate than previously postulated by many studies.

JEL Classification

D50 D60

Cite As

Lydia Gan and Shuntian Yao (2010). Monopoly Innovation and Welfare Effects. Economics Discussion Papers, No 2010-10, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2010-10

Assessment



Comments and Questions


Anonymous - Referee Report 1
June 04, 2010 - 10:26

See attached file


Lydia Gan - Reply to Referee Report 1
June 28, 2010 - 09:11

see attached file


Lydia Gan - Revised Version
June 28, 2010 - 09:12

see attached file


Anonymous - Referee Report 2
July 12, 2010 - 10:45

Good literature review. However, even if O. Williamson is mentioned, the paper could have had more depth if it had addressed the issue of labor management and its consequences on monopolist pricing strategy. The reason why I say this is related to the subsequent remark.

I am doubtful about ...[more]

... the assumption of single input (capital k). It is unrealistic and too reductive regarding innovation especially when O. Williamson is mentioned (without being seriously analyzed). This is the major drawback of the paper according to me.

Overall, the paper has potential but the aforementioned remark has to be taken into account.


Lydia Gan - Reply to Referee Report 2
August 23, 2010 - 08:38

see attached file


Lydia Gan - Revised Version
August 23, 2010 - 08:39

see attached file