Journal of Industry, Competition and Trade

, Volume 12, Issue 1, pp 21–46 | Cite as

The Relationship Between Competition and Incumbent’s Innovation

Article

Abstract

A static model is developed to analyse the incumbent’s innovation strategy under monopoly and duopoly. A number of potential objectives for the incumbent are modelled here, including the maximization of revenue, profit, and welfare (which are common among the network industries). Its marginal cost depends upon investment in new technologies and processes. The incumbent chooses its price and its level of investment in innovation. The incumbent’s elasticity of demand under both market structures and the incumbent’s market share under duopoly determine which market structure creates more incentives to innovate. For certain values of these variables, duopoly provides more incentives to innovate than monopoly. As expected, the incentives to innovate increase when the incumbent places greater weight on social welfare.

Keywords

innovation competition postal sector network industries regulation 

JEL Classification

L13 L50 L97 O31 

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Copyright information

© Springer Science+Business Media, LLC 2010

Authors and Affiliations

  1. 1.Ecole Polytechnique Fédérale de Lausanne, EPFL CDM MIRLausanneSwitzerland

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