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Uncertain Innovation and the Persistence of Monopoly

Reinganum, Jennifer F. (1982) Uncertain Innovation and the Persistence of Monopoly. Social Science Working Paper, 431. California Institute of Technology , Pasadena, CA. (Unpublished)

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In a recent paper published in this Review, Gilbert and Newbery (1982) show that, because an incumbent firm enjoys greater marginal incentives to engage in R and D (under their assumption of deterministic invention), the incumbent firm will engage in preemptive patenting. Thus the industry will tend to remain monopolized, and by the same firm. They then argue heuristically that this result extends to the case in which innovation is uncertain. One form of this conjecture is that the incumbent patents the innovation more often than not. We briefly review the Gilbert and Newbery argument as well as those in related papers (Gilbert, 1981 and Craswell, 1981). We then present a model which incorporates uncertainty and concludes the contrary; that is, in a Nash equilibrium the incumbent firm invests less on the innovation than a challenger. Consequently, the incumbent firm will patent the innovation less often than not. This result indicates that one need worry far less about persistent monopoly than would be suggested by the Gilbert and Newbery analysis.

Item Type:Report or Paper (Working Paper)
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Alternate Title:Uncertain Innovation and the Persistence of Monopoly: Reply
Additional Information:Reply to Gilbert, Richard J. and Newbery, David M. G., "Preemptive Patenting and the Persistence of Monopoly," American Economic Re- view, June 1982, 72, 514-26. I would like to thank Ed Green and John Roberts for helpful comments. The financial support of the National Science Foundation is gratefully acknowledged. Published as Reinganum, Jennifer F. "Uncertain innovation and the persistence of monopoly: Reply." The American Economic Review 74.1 (1984): 243-246.
Group:Social Science Working Papers
Funding AgencyGrant Number
Subject Keywords:Incumbents, Fixed costs, Stochastic models, Inventions, Technological innovation, Monopoly, Economic models, Patents, Determinism, Bidding
Series Name:Social Science Working Paper
Issue or Number:431
Record Number:CaltechAUTHORS:20171002-160636872
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:81977
Deposited By: Jacquelyn Bussone
Deposited On:02 Oct 2017 23:23
Last Modified:03 Oct 2019 18:49

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