Do Process Innovations Induce Product Ones?
AbstractWe study the relationship between process and product innovations in vertically differentiated duopolies. A process innovation can lead two competing firms to improve the quality of their goods introducing a product innovation. In fact, a cost reducing innovation has two effects: it spurs production and it enhances price competition. The former effect induces both firms to increase quality. The latter encourages differentiation, inducing low quality firm to decrease it. Therefore, high quality firm always improves its quality, while the other may or may not. The prevailing effect depends on the nature of quality costs (fixed or variable).
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Bibliographic InfoPaper provided by University of Bergamo, Department of Economics in its series Working Papers with number 0601.
Length: 41 pages
Date of creation: May 2006
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Other versions of this item:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- O33 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-01-14 (All new papers)
- NEP-COM-2007-01-14 (Industrial Competition)
- NEP-INO-2007-01-14 (Innovation)
- NEP-MIC-2007-01-14 (Microeconomics)
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