Does the market deliver the right technology?

- Firms choose the technology that maximizes their profit.
- The size and the mass of firms/varieties vary with the technology choice.
- Firms do not internalize the effect of the technology choice on the mass of varieties.
- Under monopolistic competition, the mass of varieties affects welfare.
- Under conditions identified in the paper, firms choose the wrong technology.

We show that the market does not systematically deliver the right technology under monopolistic competition. (i) Firms might rush on large-scale technology, pushing to the exit many desirable varieties produced by small firms. (ii) Firms might shun large-scale technology, though that technology would benefit the society through lower prices. (iii) A bias towards small-scale technology in some stage of development, and a bias towards large-scale technology in another stage is also a possibility.