It is argued that monopolistic firms don't have an incentive to innovate because of the problem of cannabilization. This is known as
A) The replacement effect
B) The efficiency effect
C) The opportunity cost effect
D) The sunk costs effect

Question

Quizplus · Accepted Answer

The replacement effect refers to the idea that monopolistic firms may avoid innovation because new products could cannibalize their existing products, reducing their overall profits.

It Is Argued That Monopolistic Firms Don't Have an Incentive