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Strategic R&D and the innovation of products: understanding the role of time preferences and product differentiation

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  • Jason M. Walter
  • Jeffrey M. Peterson

Abstract

We evaluate the effects of innovation on competition using an optimal control approach that incorporates firms' time preferences. Using a model where firm(s) innovates by investing in research and development to create a more appealing product for heterogeneous consumers, we examine conditions that maximize social welfare. When firm(s) choose discount rate regardless of market structure, a monopoly will develop more innovative products. However, we show that duopolies may increase innovation if competition alters firms' outlook. Finally, we identify firm incentives to behave myopically, which in the context of collusion may impede industry-wide innovation.

Suggested Citation

  • Jason M. Walter & Jeffrey M. Peterson, 2017. "Strategic R&D and the innovation of products: understanding the role of time preferences and product differentiation," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 26(7), pages 575-595, October.
    • Handle: RePEc:taf:ecinnt:v:26:y:2017:i:7:p:575-595
    DOI: 10.1080/10438599.2016.1249063
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    References listed on IDEAS

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    Cited by:

    1. Zach Raff & Jason M. Walter, 2020. "Regulatory Avoidance and Spillover: The Effects of Environmental Regulation on Emissions at Coal-Fired Power Plants," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 75(3), pages 387-420, March.
    2. Abbas, Sadia & Adapa, Sujana & Sheridan, Alison & Azeem, Muhammad Masood, 2022. "Informal competition and firm level innovation in South Asia: The moderating role of innovation time off and R&D intensity," Technological Forecasting and Social Change, Elsevier, vol. 181(C).
    3. Hiller R. Scott & Walter Jason M., 2017. "The Rise of Streaming Music and Implications for Music Production," Review of Network Economics, De Gruyter, vol. 16(4), pages 351-385, December.
    4. Natalya Yu. Yaroshevich, 2020. "Production differentiation in the industrial markets for mechanical engineering: Supply factors," Upravlenets, Ural State University of Economics, vol. 11(5), pages 47-57, November.

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