Abstract
The role of patents is threefold: first, they are important to state the property rights of an invention; second, they are necessary to secure financing for starting a new venture; third, they are fundamental to recoup R&D investments. The main difficulty in preventing unauthorized use of an innovation is in the establishment of ranges and contexts of patents applicability. Noting the imperfections of the patent legal system, the authors are in a position to consider an economy with two levels of competition under different market structures: the inter-sector monopolistic competition and the intra-sector Cournot oligopoly. The explicit consideration of strategic interactions in a model of endogenous growth produces interesting results. Considering the sectorial market share as the indicator of patent system enforcement, the authors find that growth takes place, if and only if, there are some property rights of private knowledge produced by R&D activities. In turn, the patent system translates into a low degree of competition among firms. Its influence on the growth rate goes in a single unambiguous direction. As competition rises, few resources are available for R&D, so the growth rate goes down.
Highlights
The aim of this paper is to investigate the relationship between the growth rate and the intensity of market competition when monopolistic and oligopolistic competition coexist in a model with an expanding variety of products
2 Following as example, Hart (1985) or Wolinsky (1986), the four standard properties of monopolistic competition are: (1) there are many firms producing differentiated commodities; (2) each firm is our aim is twofold: on the one hand, we propose a different approach where two market structures simultaneously coexist in a growth model; on the other hand, we study the influence of the degree of competition on the growth rate when strategic interaction really plays a role
The first is related to the two dimensions of competition: the inter-sector monopolistic competition between differentiated products, and the Cournot oligopoly at the intra-sector level
Summary
The aim of this paper is to investigate the relationship between the growth rate and the intensity of market competition when monopolistic and oligopolistic competition coexist in a model with an expanding variety of products. The inter-sector monopolistic competition is more or less intense on the basis of the degree of substitutability among differentiated goods, while the degree of intra-sector competition depends on the number of active firms in each sector. A single (constant) parameter characterizes the degree of product differentiation (which is itself related to the “love for variety”, the degree of substitutability and the market power), facilitating the analysis between the market power of firms and the growth rate. The last property is the symmetry between old and new varieties, which removes product obsolescence and, as a consequence, excludes improvements in quality
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