where Ao is the initial value given by history. (Of course, it is always possible to produce the consumption good using an old technology, with a correspondingly old intermediate good.) A successful innovator obtains a patent which it can use to monopolize the intermediate sector. (Section 8 relaxes this assumption by allowing for a finite number of monopolistic competitors.) The patent is assumed to last forever. However, the monopoly lasts only until the next innovation, at which time the intermediate good is replaced by the next vintage. All markets are perfectly competitive except that for intermediate goods.