Market power screens willingness-to-pay

E. Glen Weyl*, Jean Tirole

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

29 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 languageEnglish (US)
Article numberqjs032
Pages (from-to)1971-2003
Number of pages33
JournalQuarterly Journal of Economics
Volume127
Issue number4
DOIs
StatePublished - Nov 2012
Externally publishedYes

ASJC Scopus subject areas

  • Economics and Econometrics

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