... so. The question is important and has strong implications. For instance, in the past, some economists have argued that monopolists were conservative rather than innovative (the two terms have almost been used as antonyms in the past) and that innovation was driven by new rather than established firms. Here is the basic Gilbert & Newbury model. Consider a sequential game between a monopolist with an about-to-expire patent and a potential entrant. The cost of entry for the entrant is $10 million. The monopoly profit is $100 m. In case of successful entry, each firm will make duopoly profit of $40 m (the entrant will make a net profit of $30 m). If the monopolist spends $10 m, it can obtain a new patent with certainty that will extend its monopoly. The monopolist gets to play first. If it patents, there will be no entry and the potential entrant makes zero ...

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