Cost Structures and Innovation Incentives
Document Type
Research Article
Abstract
In a Cournot oligopoly set up with constant marginal cost and linear demand, innovation is rewarding, i.e., profit enhancing. We show that the same may not be true when marginal costs are increasing. In contrast to the standard results, we show the possibilities of conditional innovation/retrogression by firms: when the number firms š=1 or 2 innovation is undertaken by firms unconditionally and with certainty while for š>3 there exists an innovationāneutral technology line dividing the regions of innovation and technological retrogression (henceforth retrogression). We bring forth the unconventional but interesting relationship between the intensity of competition and welfare ā āš>3 competition decreases welfare and thus leads to Pareto deterioration while the lack thereof enhances welfare and results in Pareto improvement. We suggest āmonitored competitionā as in restricted entry to encourage innovation, as a potential policy instrument.
DOI
https://doi.org/10.1016/j.mathsocsci.2025.102436
Publication Date
6-6-2025
Recommended Citation
Mishra S, āCost Structures and Innovation Incentivesā [2025] Mathematical Social Sciences 102436
Journal
Mathematical Social Sciences