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Adoption of Product and Process Innovations in Differentiated Markets: The Impact of Competition

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  • Pia Weiss

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Abstract

The paper examines the effects of the degree of competition on firms'decisions to innovate in differentiated markets. Firms favor productinnovations if they produce close substitutes (so competition is severe) andfavor process innovations if products are differentiated (so competition isless severe). Assumptions on the strategic complementarity of product andprocess innovations and on the decreasing returns of a product innovationare found to be the critical assumptions in the sense of Milgrom and Roberts (1994). Copyright Kluwer Academic Publishers 2003

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File URL: http://hdl.handle.net/10.1023/B:REIO.0000031372.79077.fc
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Bibliographic Info

Article provided by Springer in its journal Review of Industrial Organization.

Volume (Year): 23 (2003)
Issue (Month): 3 (December)
Pages: 301-314

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Handle: RePEc:kap:revind:v:23:y:2003:i:3:p:301-314

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Web page: http://www.springerlink.com/link.asp?id=100336

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Keywords: Competition; process and product innovation; product differentiation;

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References

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  1. Milgrom, Paul & Roberts, John, 1994. "Comparing Equilibria," American Economic Review, American Economic Association, vol. 84(3), pages 441-59, June.
  2. Rosenkranz, Stephanie, 1995. "Innovation and cooperation under vertical product differentiation," International Journal of Industrial Organization, Elsevier, vol. 13(1), pages 1-22, March.
  3. Greenstein, Shane & Ramey, Garey, 1998. "Market structure, innovation and vertical product differentiation," International Journal of Industrial Organization, Elsevier, vol. 16(3), pages 285-311, May.
  4. Rosenkranz, Stephanie, 2003. "Simultaneous choice of process and product innovation when consumers have a preference for product variety," Journal of Economic Behavior & Organization, Elsevier, vol. 50(2), pages 183-201, February.
  5. Bonanno, Giacomo & Haworth, Barry, 1998. "Intensity of competition and the choice between product and process innovation," International Journal of Industrial Organization, Elsevier, vol. 16(4), pages 495-510, July.
  6. Boone, Jan, 2001. "Intensity of competition and the incentive to innovate," International Journal of Industrial Organization, Elsevier, vol. 19(5), pages 705-726, April.
  7. Bester, H. & Petrakis, E., 1991. "The Incentives for Cost Reduction in a Differentiated Industry," Discussion Paper 1991-36, Tilburg University, Center for Economic Research.
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Citations

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Cited by:
  1. Cellini, Roberto & Lambertini, Luca & Sterlacchini, Alessandro, 2009. "Managerial incentive and the firms’ propensity to invest in product and process innovation," MPRA Paper 12935, University Library of Munich, Germany.
  2. Murat Yildizoglu (GREThA) & Mohamed AYADI (UAQUAP, Université de Tunis) & Mohieddine RAHMOUNI (UAQUAP et GREThA), 2007. "Sectoral patterns of innovation in a developing country: The Tunisian case," Cahiers du GREThA 2007-19, Groupe de Recherche en Economie Théorique et Appliquée.
  3. Yu-Shan Su & Eric Tsang & Mike Peng, 2009. "How do internal capabilities and external partnerships affect innovativeness?," Asia Pacific Journal of Management, Springer, vol. 26(2), pages 309-331, June.
  4. Luisa Carvalho & Teresa Costa & Jorge Caiado, 2012. "Determinants of innovation in a small open economy: A multidimensional perspective," CEMAPRE Working Papers 1201, Centre for Applied Mathematics and Economics (CEMAPRE), School of Economics and Management (ISEG), Technical University of Lisbon.
  5. James G. Mulligan & Nilotpal Das, 2005. "Persistent Adoption of Time-Saving Process Innovations," Working Papers 05-03, University of Delaware, Department of Economics.
  6. Sebastian Braun, 2007. "Trade Liberalisation, Process and Product Innovation, and Relative Skill Demand," SFB 649 Discussion Papers SFB649DP2007-001, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  7. Maria JOSE SILVA & Gastão SOUSA & Jacinta MOREIRA & Jorge SIMÕES, 2011. "Innovation Activities in the Service Sector: Empirical Evidence from Portuguese Firms," Journal of Knowledge Management, Economics and Information Technology, ScientificPapers.org, vol. 1(6), pages 17, October.

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