Question

a. Would a pure monopoly have a strong or a weak incentive to engage in Research and Development? Explain your answer.

b. For a monopoly firm, is Research and Development spending viewed as an offensive or defensive move? Explain.

Answer 1

1 - No , pure monopoly will be likely to have lesser interest and engagement in the research and development . This is because , the pure monopoly is the sole owner of the resource and had no close substitutes for the product. Also the entry into the market is restricted. Hence there is no need for firm to engage in research and development activity in order to improve the product as it does not have to face any competition. It can continue to produce the same old good.

2 - The reasearch and development by the monopoly would be viewed as the offensive because these are based upon the expansion of the market power and to spur away the potential competition. They are not in response to the any other strategy. If they would have been , they would be called defensive. Hence the R&D activity by the monopoly will be called offensive.