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Introduction to Modern Economic Growth for innovation See, for example, Scotchmer (2005) This perspective has recently been criticized by Boldrin and Levine (2003) The idea of creative destruction was also originally developed by Schumpeter Models of creative destruction in the industrial organization literature include Reinganum (1983, 1985) Similar models in the growth literature are developed in Aghion and Howitt (1992, 1998) Chamberlin (1933) is the classic reference on monopolistic competition The Dixit-Stiglitz model is developed in Dixit and Stiglitz (1977) and is also closely related to Spence (1976) This model was first used for an analysis of R&D in Dasgupta and Stiglitz (1979) Tirole (1990, Chapter 7) discusses the Dixit-StiglitzSpence model and also other models of product innovation, including the Salop model, due to Salop (1979), which is presented in Exercise 12.14 An excellent general discussion of issues of innovation and the importance of market size and profit incentives is provided in Schmookler (1966) Recent evidence on the effect of market size and profit incentives on innovation is discussed in Popp (2002), Finkelstein (2003) and Acemoglu and Linn (2004) Mokyr (1990) contains an excellent history of innovation Freeman (1982) also provides a survey of the qualitative literature on innovation and discusses the different types of innovations In this chapter and the rest of this part of the book, we will deal with monopolistic environments, where the appropriate equilibrium concept is not the competitive equilibrium, but one that incorporates game-theoretic interactions Throughout the games we will study in this book will have complete information, thus the appropriate notion of equilibrium is the standard Nash equilibrium concept or when the game is multi-stage or dynamic, it is the subgame perfect Nash equilibrium In these situations, equilibrium always refers to a Nash equilibrium or a subgame perfect Nash equilibrium, and we typically not add the additional “Nash” qualification We presume that the reader is familiar with these concepts A quick introduction to the necessary game theory is provided in the Appendix of Tirole (1990), and a more detailed treatment can be found in Fudenberg and Tirole (1994), Myerson (1995) and Osborne on Rubinstein (1994) 566