Uncertainty, Market Structure and the Incentive to Invent
Bibliographic Data
| ID | 9728139 |
|---|---|
| Authors | Dennis J Fixler, Dennis Fixler (corresponding author) |
| Year | 1983 |
| Volume | 50 |
| Issue | 200 |
| Pages | 407 |
| Publication date | 1983-11-01 |
| Open Access | No |
| Type | ARTICLE |
| Venue | Economica (JOURNAL) |
| Journal identifiers | ISSN: 0013-0427 • E-ISSN: 1468-0335 |
| Publisher | JSTOR (PUBLISHER) |
| DOI | 10.2307/2554303 |
| OpenAlex | W1969602262 |
| Language | EN |
| References cited | 3 |
In the light of the current concern over the reported decline in research and development expenditures as well as in productivity, the identification of the most technologically progressive market structure has become an important issue. The purpose of this paper is to examine the relationship between market structure and the incentive to invent by considering both the uncertainty of the invention process and the association between the inventor and the buyer/user. Specifically, the analysis considers an independent inventor, the structure of the invention-buying industry, and the ramification of a merger between the inventor and buyer. Numerous studies have addressed the link between market structure and technological change, e.g. Schumpeter (1942), Arrow (1962), Demsetz (1969), Kamien and Schwartz (1970), Ng (1971, 1977), and Davies (1975, 1977). Yet, these studies suffer from a number of important limitations. (a) They ignore the uncertainty of the invention process. (b) Their comparison between a monopoly and a competitive industry is biased in terms of the royalty payment assessed in that the monopoly and the inventor are treated as one while the inventor is exogenous to the competitive industry. (c) Although the cost of producing the final output is invariant to market structure, demand is not. This accounts for the diverse conclusions.1 (d) Their measure of the incentive to invent is the total return to the inventor; but, as pointed out by Hu (1973), it is the marginal return and the allocation of resources to inventive activity that is important. Recent papers by Dasgupta and Stiglitz (1980a, b) addressed some of these concerns through a consideration of the effect of competition in research and development effort upon the long-run equilibrium level of concentration in an industry.2 Their analysis, however, was also one that downplayed the importance of output and profit differences, independent inventors, and attitudes towards risk. They concluded, among other things, that competition in R and D requires imperfect competition in product markets.3 As will be discussed in Section II, the compatibility of competitive product markets and inventive effort can be seen through a consideration of a trade association, a common phenomenon in competitive industries. An explicit consideration of the long-run link between research and development effort and the level of concentration is not present because the focus of this study is upon the static efficiency of different market arrangements in providing an incentive to invent. Such an approach is useful in gauging the efficacy of tax policy and the like to encourage research and development. The analysis compares the performance of a monopoly and a competitive industry and overcomes the aforementioned limitations in the following way
Business · Economics · Financial economics · Incentive · Industrial organization · Microeconomics · Capital Investment and Risk Analysis · Economic Growth and Productivity · Innovation Diffusion and Forecasting
| Highly cited | No |
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