UNCERTAIN INNOVATION AND PERSISTENCE OF MONOPOLY REVISITED

Does monopoly persist in a dynamic industry with opportunities for technological innovations? This paper points out that the persistence of monopoly under uncertain innovations depends on how R&D competition is modeled. If the incumbent and the entrant bid for a stochastic R&D technology in an auction framework as in Gilbert and Newbery (American Economic Review, 1982, 72, 514-526) before engaging in R&D competition as in Reinganum (American Economic Review, 1983, 73, 741-748), then the incumbent monopolist wins the auction with probability one both for drastic and nondrastic innovations.