Econ 483_Lecture 3_Patents_Market structure

Ip characteristics but how would the cost of

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Unformatted text preview: on producing the good is made only once, thus depriving a user does not free up resources ) The e¢ cient (competitive) price is zero. Lecture 3: IP & market structure, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. IP Characteristics But, how would the cost of producing public goods be covered? Solution: intellectual property protection ) Intellectual property rights make the proprietor a monopolist (say M ). The problem with monopoly pricing is deadweight loss. ) the loss in consumers’surplus (CS) due to the users who are excluded through monopoly pricing during the life of a patent Lecture 3: IP & market structure, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. IP Characteristics Marginal revenues Suppose: P (Q ): inverse demand function; revenues: TR (Q ) = P (Q ) Q Marginal revenues MR (Q m ) = MR (Q m ) = ∂TR (Q ) ∂Q : dP (Q m ) m Q + P (Q m ) | {z } dQ | {z } direct e¤ect indirect e¤ect dP (Q m ) dQ shows how much price must fall to sell one more unit It is the slope of the demand curve at Q . Lecture 3: IP & market structure, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. IP Characteristics Marginal revenues Lecture 3: IP & market structure, Econ483: Econ of Innovation & Technology, Evangelia Chalioti c A ll rights reserved. IP Characteristics Ine¢ ciency of monopoly pricing Suppose: C (Q ) = cQ , the cost function Thus, the marginal cost is c . Pro…t-maximizing output level, Q m (where MR = MC ): P (Q m ) + Lecture 3: IP & market structure, dP (Q...
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