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Product versus Process: Innovation Strategies of Multiproduct Firms

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  • Lisandra Flach
  • Michael Irlacher

Abstract

We investigate the effects of better access to foreign markets on innovation strategies of multiproduct firms in industries with different scope for product differentiation. Industry-specific demand and cost linkages induce a distinction between the returns to innovation. In differentiated industries, cannibalization is lower and firms invest more in product innovation. In homogeneous industries, firms internalize intra-firm spillovers and invest more in process innovation. Using firm-level data and large exchange rate devaluations, we show that better access to foreign markets increases the incentive to innovate. However, we exploit differential effects across industries and show that the innovation strategies depend on the scope of differentiation.

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  • Lisandra Flach & Michael Irlacher, 2018. "Product versus Process: Innovation Strategies of Multiproduct Firms," American Economic Journal: Microeconomics, American Economic Association, vol. 10(1), pages 236-277, February.
    • Handle: RePEc:aea:aejmic:v:10:y:2018:i:1:p:236-77
    Note: DOI: 10.1257/mic.20150272
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    Cited by:

    1. Michael Irlacher, 2018. "Multi-product firms and gains from trade through intra-firm adjustments," Economics Bulletin, AccessEcon, vol. 38(4), pages 2266-2272.
    2. Çağatay Bircan & Ralph De Haas, 2020. "The Limits of Lending? Banks and Technology Adoption across Russia," The Review of Financial Studies, Society for Financial Studies, vol. 33(2), pages 536-609.
    3. Chan, Jackie M.L. & Irlacher, Michael & Koch, Michael, 2022. "Multiproduct Mergers and the Product Mix in Domestic and Foreign Markets," VfS Annual Conference 2022 (Basel): Big Data in Economics 264022, Verein für Socialpolitik / German Economic Association.
    4. Forslid, Rikard & Okubo, Toshihiro, 2023. "Trade, location, and multi-product firms," Regional Science and Urban Economics, Elsevier, vol. 100(C).
    5. Letizia Montinari & Massimo Riccaboni & Stefano Schiavo, 2021. "Innovation, trade and multi‐product firms," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(1), pages 311-337, February.
    6. Lisandra Flach & Michael Irlacher, 2018. "Product versus Process: Innovation Strategies of Multiproduct Firms," American Economic Journal: Microeconomics, American Economic Association, vol. 10(1), pages 236-277, February.
    7. Eckel, Carsten & Irlacher, Michael, 2017. "Multi-product offshoring," European Economic Review, Elsevier, vol. 94(C), pages 71-89.
    8. Daniel Baumgarten & Michael Irlacher & Karin Mayr‐Dorn, 2022. "Internationalization strategies of multi‐product firms: The role of technology," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(4), pages 1929-1965, November.
    9. Bryson, Alex & Dale-Olsen, Harald, 2020. "Unions, Tripartite Competition and Innovation," IZA Discussion Papers 13015, Institute of Labor Economics (IZA).
    10. Nobuyuki Takashima & Yasunori Ouchida, 2020. "Quality‐improving R&D and merger policy in a differentiated duopoly: Cournot and Bertrand equilibria," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(7), pages 1338-1348, October.
    11. Xinghua Deng & Ran Jing & Zheng Liang, 2020. "Trade liberalisation and domestic brands: Evidence from China's accession to the WTO," The World Economy, Wiley Blackwell, vol. 43(8), pages 2237-2262, August.
    12. Flach, Lisandra & Irlacher, Michael & Unger, Florian, 2021. "Corporate taxes and multi-product exporters: Theory and evidence from trade dynamics," Journal of International Economics, Elsevier, vol. 132(C).
    13. Michael Irlacher, 2022. "Multi-Product Firms in International Economics," CESifo Working Paper Series 9589, CESifo.
    14. Chunming Zhao & Qun Zhang, 2016. "Input Trade Liberalization and Export Product Scope: Evidence from China," Business and Economic Research, Macrothink Institute, vol. 6(2), pages 118-132, December.
    15. Carsten Eckel & Lisandra Flach & Ning Meng, 2023. "Demand and Supply Side Linkages in Exporting Multiproduct Firms," Rationality and Competition Discussion Paper Series 456, CRC TRR 190 Rationality and Competition.
    16. Wenbo Zhu, 2023. "Skill‐replacing process innovation and the labour market: Theory and evidence," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 56(4), pages 1583-1614, November.
    17. Rikard FORSLID & OKUBO Toshihiro, 2024. "R&D Subsidies and Multi-product Firms," Discussion papers 24015, Research Institute of Economy, Trade and Industry (RIETI).
    18. Franz Hackl & Michael Hölzl-Leitner & Dieter Pennerstorfer, 2021. "How to Measure Product Differentiation," Economics working papers 2021-01, Department of Economics, Johannes Kepler University Linz, Austria.
    19. Lim, King Yoong & Morris, Diego, 2023. "Business optimism and the innovation-profitability nexus: Introducing the COVID-19 adaptable capacity framework," Research Policy, Elsevier, vol. 52(1).
    20. Ina C. Jäkel & Allan Sørensen, 2020. "Quality‐cum‐price sorting," The World Economy, Wiley Blackwell, vol. 43(5), pages 1346-1370, May.
    21. Sarbu, Miruna, 2022. "The impact of industry 4.0 on innovation performance: Insights from German manufacturing and service firms," Technovation, Elsevier, vol. 113(C).

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    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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