Taste for variety: Model of Grossman and Helpman.

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Variety expansionThe ModelExpected profits from R&D◮ The free entry requires, that the number of oligopolisticproducers is defined from the expected zero profit condition;◮ Profits of inventors are equal to costs of research then;◮ Zero profit condition implies then:∫ ∞te −(R(τ)−R(t)) π i (τ)dτ = c ni (t), ∀t. (17)◮ Expected discounted stream of profits from producing themiddle product is equal to costs of inventing this product atany given time t.
Variety expansionThe ModelNo-arbitrage conditionDifferentiating Eq. 17 w. r. t. to time we obtain the so-calledno-arbitrage condition:π i (t) + c ˙ ni (t)c ni (t)= ˙ R(t). (18)instantaneous return on shares of variety producing firms must bethe same as the instantaneous interest rate.
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Taste for variety: Model of Grossman and Helpman.

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