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Immiserising invention: the private and social returns to R&D under oligopoly

By David de Meza

Abstract

A cost-saving invention may so enhance a firm's market power that output price rises. The private return to R&D may then exceed the realised social gain. These possibilities arise when integer constraints are important in determining industry size. If economies of scale are exhausted at sufficiently low outputs for free entry to result in a zero-profit equilibrium, small inventions leave output price unchanged. This mirrors Arrow's perfectly competitive model. But under oligopoly both fixed fees and (possibly negative) royalties are used by an inventor in earning a return which may exceed the potential social gain

Topics: HB Economic Theory, HD Industries. Land use. Labor
Publisher: Elsevier
Year: 1986
DOI identifier: 10.1016/0167-7187(86)90013-5
OAI identifier: oai:eprints.lse.ac.uk:35586
Provided by: LSE Research Online
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