Citation

Discussion Paper Details

Please find the details for DP14558 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Innovate to Lead or Innovate to Prevail: When do Monopolistic Rents Induce Growth?

Author(s): Roberto Piazza and Yu Zheng

Publication Date: April 2020

Keyword(s): Endogenous growth theory, Innovation and Persistent monopoly

Programme Area(s): Macroeconomics and Growth

Abstract: This paper extends the standard Schumpeterian model of creative destruction by allowing the cost of innovation for followers to increase in their technological distance from the leader. This assumption is motivated by the observation that the more technologically advanced the leader is, the harder it is for a follower to leapfrog without incurring extra cost for using leader's patented knowledge. Under this R&D cost structure, leaders have an incentive to play an "endpoint strategy": they increase their technological advantage, counting on the fact that followers will eventually stop innovating â?? allowing leadership to prevail. We find that several results in the standard model now fail to hold. In addition to the High Growth steady state in which only followers innovate, there now exist two other steady states: a Medium Growth (a source) and a Low Growth (a saddle) steady state, that feature both leaders and followers innovating. An increase in monopolistic rents or an extension of patent duration increases the likelihood that over time the economy converges to a low growth steady state.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14558

Bibliographic Reference

Piazza, R and Zheng, Y. 2020. 'Innovate to Lead or Innovate to Prevail: When do Monopolistic Rents Induce Growth?'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14558