Lectures in Microeconomics-Charles W. Upton Innovation and Durability.

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Presentation transcript:

Lectures in Microeconomics-Charles W. Upton Innovation and Durability

Bringing New Technologies to Market Does a monopoly have the incentive to be an innovator and bring new products to market?

Innovation and Durability Bringing New Technologies to Market Does a monopoly have the incentive to be an innovator and bring new products to market? Many argue that firms like Microsoft, which arguably has a monopoly on operating systems, do not have the right incentives to produce new more innovative operating systems.

Innovation and Durability An Example

Innovation and Durability Sales at Different Prices

Innovation and Durability The Next Step After selling the word processing program to Wilson, Green and Brown, the monopolist can develop a new version of the software package for which everyone would be willing to pay an additional $10.

Innovation and Durability The Next Step After selling the word processing program to Wilson, Green and Brown, the monopolist can develop a new version of the software package for which everyone would be willing to pay an additional $10.

Innovation and Durability The Next Step The cost of producing the software package is $25. Development is a desirable step, but will the monopolist do it?

Innovation and Durability Here’s How He offers the package as an "upgrade" option to Wilson, Green and Brown and as a new package to Smith and Jones for $20.

Innovation and Durability The Calculations

Innovation and Durability The Calculations Monopolists will innovate if there is a profit opportunity.

Innovation and Durability Durability Lake Restful Resort

Innovation and Durability Lake Restful Resort 60 P* D MR A Developer owns all the land around Lake Restful

Innovation and Durability Lake Restful Resort 60 P* D MR The 100 acres are to be developed in one acre lots.

Innovation and Durability Lake Restful Resort 60 P* D MR The 100 acres are to be developed in one acre lots. But how many?

Innovation and Durability Lake Restful Resort 60 P* D MR Set P where MR =0

Innovation and Durability Lake Restful Resort-Round 2 60 P* D MR P** 80 Why not then do a second round?

Innovation and Durability The Problem Everyone knows the developer can proceed with round two. Thus no one will buy in round one, unless given assurances.

Innovation and Durability The Problem Everyone knows the developer can proceed with round two. Thus no one will buy in round one, unless given assurances. –Deed land to nature preserve. –Guarantee in writing no second round.

Innovation and Durability The Christmas Problem Think Christmas. It is November. Wonder Toys has produced 60 Wonder Toys®. It will be impossible to produce any more for the Christmas Season.

Innovation and Durability The Christmas Problem Think Christmas. It is November. Wonder Toys has produced 60 Wonder Toys®. It will be impossible to produce any more for the Christmas Season. The demand is Q = p

Innovation and Durability The Christmas Problem Think Christmas. It is November. Wonder Toys has produced 60 Wonder Toys®. It will be impossible to produce any more for the Christmas Season. The demand is Q = p How many Wonder Toys® should be donated to Charity?

Innovation and Durability The Christmas Problem MR Q = p

Innovation and Durability The Christmas Problem MR Q = p

Innovation and Durability The Christmas Problem MR Q = p Solve the overhang; give 10 to charity

Innovation and Durability The Christmas Problem MR Q = p Solve the overhang; give 10 to charity And do it publicly. This is no time for modesty.

Innovation and Durability The New Condo A new condominium apartment building comes on the market. How does a potential buyer protect against this scam?

Innovation and Durability The New Condo A new condominium apartment building comes on the market. How does a potential buyer protect against this scam? This is not just the buyer’s problem. The seller must assure the buyer or there will be no buyer.

Innovation and Durability The New Condo A new condominium apartment building comes on the market. How does a potential buyer protect against this scam? This is not the just buyer’s problem. The seller must assure the buyer or there will be no buyer. –Early buyer discounts. –Written promises not to discount.

Innovation and Durability This Month’s New Computer In the heyday of rapid technology of new computers, buyers of a new computer faced the risk that a new more powerful computer would come out the next month, with significantly better bang for the dollar. IBM solved this problem by offering to lease computers.

Innovation and Durability End ©2003 Charles W. Upton