Market power screens willingness-to-pay

E. Glen Weyl; Jean Tirole

doi:10.1093/qje/qjs032

Market power screens willingness-to-pay

E. Glen Weyl^*, Jean Tirole

^*Corresponding author for this work

Office of the Provost

Research output: Contribution to journal › Article › peer-review

41 Scopus citations

Abstract

What is the best way to reward innovation? While prizes avoid deadweight loss, intellectual property (IP) selects high social surplus projects. Optimal innovation policy thus trades off the ex ante screening benefit and the ex post distortion. It solves a multidimensional screening problem in the private information held by the innovator: research cost, quality, and market size of the innovation. The appropriate degree of market power is never full monopoly pricing and is determined by measurable market characteristics, the inequality and elasticity of innovation supply, making the analysis open to empirical calibration. The framework has applications beyond IP policy to the optimal pricing of platforms or the optimal procurement of public infrastructure.

Original language	English (US)
Article number	qjs032
Pages (from-to)	1971-2003
Number of pages	33
Journal	Quarterly Journal of Economics
Volume	127
Issue number	4
DOIs	https://doi.org/10.1093/qje/qjs032
State	Published - Nov 2012

Funding

*Weyl acknowledges the support of the Milton Fund and Nokia. Tirole acknowledges the support of Microsoft and Nokia to the Institute for Industrial Economics (IDEI). The research leading to these results has received funding from the European Research Council under the European Community’s Seventh Framework Programme (FP7/2007–2013) Grant Agreement no. 249429. We are grateful to many people for helpful comments and we especially thank Roland Bénabou, Joshua Gans, Elhanan Helpman, Scott Duke Kominers, José Scheinkman, Josh Schwartzstein, Yossi Spiegel, Scott Stern, Michael Whinston, Pai-Ling Yin, and four anonymous referees. We also appreciate the excellent research assistance of Stephanie Lo, Vladimir Mukharlyamov, David Smalling, William Weingarten, and especially André Veiga and Rui Wang. All errors are our own. The order of authors has been chosen to conform to the scientific convention of priority of contribution rather than the social convention of alphabetic precedence.

ASJC Scopus subject areas

Economics and Econometrics

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

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10.1093/qje/qjs032

Cite this

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abstract = "What is the best way to reward innovation? While prizes avoid deadweight loss, intellectual property (IP) selects high social surplus projects. Optimal innovation policy thus trades off the ex ante screening benefit and the ex post distortion. It solves a multidimensional screening problem in the private information held by the innovator: research cost, quality, and market size of the innovation. The appropriate degree of market power is never full monopoly pricing and is determined by measurable market characteristics, the inequality and elasticity of innovation supply, making the analysis open to empirical calibration. The framework has applications beyond IP policy to the optimal pricing of platforms or the optimal procurement of public infrastructure.",

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Market power screens willingness-to-pay

Abstract

Funding

ASJC Scopus subject areas

UN SDGs

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