Market structure, innovations, and welfare

In this dissertation, an optimal control model of innovation is developed to analyze the welfare implications of market structure under uncertainty. The stock of research and development spending is a separate input in the production process. A dynamic model incor- poratin both process and product innovation is introduced. Product innovation is a dynamic non - cooperative, one - shot, simultaneous move, winner - take - all, non - zero sum game. Previous studies have considered some of these game theoretic aspects for Cournot oligopoly or competitive market structures. Here these two and also Stackelberg leadership are studied and evaluated. Sensitivity of welfare evaluations to variations in uncertainty is examined. Competition turns out to be welfare maximizing in all cases; the Cournot / Stackelberg welfare ranking is ambiguous. Empirical tests for the above results are conducted for two-digit SIC industries. A translog production function is estimated with capital, labor and R&D as inputs.