Analysis On The Strategic Choice Of Innovation And Social Welfare Under Asymmetric Regulation

This article reviews the movement of economic regulation, especially the price regulation in western developed countries and its reasons. Then it analyzes the lag effect of regulation and discusses the risks and spillover of innovation. Further, to illuminates the significance of innovation, we analyze the economic effects from some of aspects, such as economic growth, improvement of social welfare, the raise of consumption level, optimization of industrial structure and the development of enterprises.We model a game of innovation and imitation between a regulated firm and an unregulated firm. We find that even the stronger incentive regulation and asymmetric regulation which are widely used in western developed countries may have negative effects. On one hand, if the innovation is not expensive and risky, and imitation is difficult, the stronger incentive regulation and asymmetric regulation may increase the defensive innovation profits of inefficient firm, so that it would adopt the innovation strategy strictly. Meanwhile, if the new technology can reduce the cost sharply, the social welfare when two firms adopt the new technology may be lower than that when only one firm adopts it. This means that stronger incentive regulation and asymmetric regulation induce"too many innovation". On the other hand, if the innovation is expensive and risky, and imitation is easy, the stronger incentive regulation and asymmetric regulation may increase the imitation profits of inefficient firm, so that it would adopt the waiting-imitation strategy, and this would reduce the aggressive innovation profit of efficient firm and prevent either firm from innovating. In other words, the stronger incentive regulation and asymmetric regulation may induce"too few innovation".