Knowledge Transfer, Transitional Dynamics and Optimal Research & Development Policy in a Dynamic Monopoly Setting
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Knowledge Transfer, Transitional Dynamics and Optimal Research & Development Policy in a Dynamic Monopoly Setting Jürgen Antony1 · Torben Klarl2,3
© The Author(s) 2020
Abstract This paper focuses on the question of whether or not a reduction of the knowledge barrier is good for welfare. Based on a dynamic monopoly setting with simultaneous investment decisions in process as well as in product Research & Development (R&D), we show that a reduction of the knowledge barrier has ambiguous welfare consequences: due to a lower knowledge barrier, product quality and welfare increase in the short-run. However, this may not necessarily be the case in the longrun. One reason is that a positive long-lasting knowledge barrier shock triggers the monopolist sub-optimally to reduce its product R&D investments today and in the future at the cost of future product quality. This in turn may reduce welfare. Accordingly, to realize the first-best level of product quality, the long-run optimal R&D subsidy rate for product innovations increases with a reduction of the knowledge barrier. Keywords Process and product innovation · Learning by doing · Knowledge spillovers · Optimal taxation · Dynamic monopoly analysis JEL Classification D4 · D6 · D9 · C4 · L1 · O3
* Torben Klarl tklarl@uni‑bremen.de Jürgen Antony juergen.antony@hs‑pforzheim.de 1
Pforzheim Business School, Pforzheim University, Tiefenbronner Straße 65, 75175 Pforzheim, Germany
2
Faculty of Business Studies and Economics, University of Bremen, Hochschulring 4, 28359 Bremen, Germany
3
Indiana University, Bloomington, 1315 E. Tenth Street, Bloomington, IN 47405‑1701, USA
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J. Antony, T. Klarl
1 Introduction Knowledge and its management are of crucial importance for a firm’s inventiveness and, hence, is essential for its sustainable competitive advantage. In general, knowledge itself has an internal as well as an external dimension. For instance, firms can increase their own knowledge stock by either investing in product R&D or process R&D, or both. However, theoretically, a firm can also exploit external knowledge that is produced by its competitors. Ironically, new knowledge—accessed externally or internally—also generates types of knowledge barriers, which may hinder the firm’s ability to exploit the accumulated and existing stock of knowledge (Caldwell 1967). The knowledge barrier is also a subject of research in knowledge management.1 In general and applied to an economic setting, the knowledge barrier refers to any impediment that prevents existing knowledge from being used elsewhere. This interpretation is consistent with Attewell’s (1992) view of knowledge barriers as the absence of ability to access existing knowledge. Knowledge barriers are relevant within the firm as well as with respect to knowledge that is external to the firm. The former is also known as internal stickiness (Szulanski 1996, 2003).2 Consistent with this somewhat vague concept of knowledge barriers, we consider anything that prevents existing knowledge from bei
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