Market Power and Growth in a Schumpeterian Framework of Innovation

Abstract

Can market power really be considered as "the price" that a society as a whole is called to pay in order to have a more dynamically efficient economic system? The schumpeterian answer to this question would be certainly positive, the monopoly power being seen as the reward accruing to the successful innovator from his/her innovative activity. However, the idea to consider the existence of any possible positive linkage among market power, innovation and growth is not unambiguously present in the so-called deterministic, neo-schumpeterian, R&D-based growth models. On the basis of such very general considerations, in this paper we build two different models, sharing the same theoretical framework suggested by P. Romer (1990). What results from the analysis is that in the more familiar models of innovation and economic development, the relationship between some measure of market power and aggregate growth rate is not robust at all, depending on variables such as the kind of inputs each industry employs in order to obtain its own output and the way in which these inputs are combined. This is particularly relevant in terms of public policies towards the intermediate monopolies, suggesting the necessity for a growth-maximising regulator to assess case-by-case the type of his/her intervention.Monopoly Power; Technological Change; Economic Growth; Antitrust Policy