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In the 1990s, growth theory has incorporated imperfect competition in its investigations. This innovation has proven to be seminal: Cleviating from growth models with perfect competition, the new framework featured forward looking entrepreneurs. Firms maximize profits intertemporarily, i. e. their in vestment leads to instantaneous sunk costs and offers flows of future profits. Firms finance this investment by launching shares. The capital market is per fectly competitive, implying that the return on a share is equal to the return on a bond. As opposed to the capital market, the goods market is imperfectly competitive. As a result of investment, firms enjoy market power. That is, firms may acquire the capability to provide a product that is differentiated in, e. g. , styling, technology, accessibility, or reputation. The launch of a dif ferentiated product allows to capture a market niche, and successful firms may price above marginal cost. The resulting profit flows are channelled to the firms' shareholders. The introduction of monopolistic competition into growth theory is valuable: real world economies may be portrayed rather by such an imperfect competition framework than by a perfect competition approach. Starting with Romer (1990), in growth theory, modeling of imperfect competition has been notoriously bound to a focus on the impact of research and development (R&D) on economic growth. In the existing literature, growth-affecting investment is restricted to R&D investment.
List of contents
I An Outline of Related Research.- 1 Literature on R&D-Based Growth.- 2 Evidence that Suggests a Broader View.- II Product Differentiation due to R&D.- 3 Expanding Product Variety.- 4 Improving Product Quality.- III Product Differentiation due to Investment.- 5 The Ramsey Model with Imperfect Competition.- 6 A Generalized AK Model.- 7 Learning-by-Doing and the Decline in the Relative Price of Capital.- IV R&D Revisited.- 8 R&D's Exhaustion Effect.- 9 Quality Ladders and Excessive Growth.- 10 Growth without Scale Effects.- V Two-Stage Input Differentiation.- 11 R&D and Physical Capital.- 12 Skilled Workers: Schooling and Specialization.- Concluding Remarks.- Appendices.- A A Suggestive Procedure to Eliminate Scale Effects.- B Stability of the Steady-State Equilibrium in the Ramsey Model with Imperfect Competition.- C Stability of the Steady-State Equilibrium in the Models with Two-Stage Input Differentiation.- References.
Summary
In the 1990s, growth theory has incorporated imperfect competition in its investigations. This innovation has proven to be seminal: Cleviating from growth models with perfect competition, the new framework featured forward looking entrepreneurs. Firms maximize profits intertemporarily, i. e. their in vestment leads to instantaneous sunk costs and offers flows of future profits. Firms finance this investment by launching shares. The capital market is per fectly competitive, implying that the return on a share is equal to the return on a bond. As opposed to the capital market, the goods market is imperfectly competitive. As a result of investment, firms enjoy market power. That is, firms may acquire the capability to provide a product that is differentiated in, e. g. , styling, technology, accessibility, or reputation. The launch of a dif ferentiated product allows to capture a market niche, and successful firms may price above marginal cost. The resulting profit flows are channelled to the firms' shareholders. The introduction of monopolistic competition into growth theory is valuable: real world economies may be portrayed rather by such an imperfect competition framework than by a perfect competition approach. Starting with Romer (1990), in growth theory, modeling of imperfect competition has been notoriously bound to a focus on the impact of research and development (R&D) on economic growth. In the existing literature, growth-affecting investment is restricted to R&D investment.
