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Process Innovations in a Duopoly with Two Region

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  • Ejermo, Olof

    ()
    (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)

  • Johansson, Börje

    ()
    (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)

Abstract

Most models of duopolies with a spatial dimension refer to the 'linear' or 'circular' city. Moreover, in duopoly models with innovations, the spatial dimension is usually dropped. We bridge this gap by constructing a model with two regions, each hosting production of a differentiated quality (high and low quality). In addition, consumers are heterogeneous with different willingness to pay for quality. The analysis focuses on the incentives for process innovations which affect the unit cost of production. The model is used to analyze two common trends in the urbanization process and their effects on the incentive for process innovations. The first is increased transportation costs and worsened interregional accessibility (the result is reversed for a decrease in transportation costs). We find that such changes increase the amount of process R&D more in the region producing a low-quality good than in the region producing a high-quality good. Second, we examine the effect on optimal process R&D of moving consumers from the region producing low-quality goods to the region producing high-quality goods. This lowers the optimal amount of process R&D undertaken in the region producing the low-quality good, while it is raised in the other region.

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Bibliographic Info

Paper provided by Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies in its series Working Paper Series in Economics and Institutions of Innovation with number 18.

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Length: 26 pages
Date of creation: 29 Nov 2004
Date of revision:
Handle: RePEc:hhs:cesisp:0018

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Postal: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, SE-100 44 Stockholm, Sweden
Phone: +46 8 790 95 63
Web page: http://www.infra.kth.se/cesis/
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Keywords: Regional agglomeration; process innovations; duopoly;

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  1. Gilles Duranton & Diego Puga, 2001. "Nursery Cities: Urban Diversity, Process Innovation, and the Life Cycle of Products," American Economic Review, American Economic Association, vol. 91(5), pages 1454-1477, December.
  2. Utterback, James M & Abernathy, William J, 1975. "A dynamic model of process and product innovation," Omega, Elsevier, vol. 3(6), pages 639-656, December.
  3. 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.
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  5. Steven Klepper & Kenneth L. Simons, 2000. "The Making of an Oligopoly: Firm Survival and Technological Change in the Evolution of the U.S. Tire Industry," Journal of Political Economy, University of Chicago Press, vol. 108(4), pages 728-760, August.
  6. 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.
  7. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
  8. Segerstrom, Paul S & Anant, T C A & Dinopoulos, Elias, 1990. "A Schumpeterian Model of the Product Life Cycle," American Economic Review, American Economic Association, vol. 80(5), pages 1077-91, December.
  9. Charlie Karlsson, 1997. "Product development, innovation networks, infrastructure and agglomeration economies," The Annals of Regional Science, Springer, vol. 31(3), pages 235-258.
  10. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Wiley Blackwell, vol. 49(1), pages 3-13, January.
  11. d'ASPREMONT, Claude & JACQUEMIN, Alexis, . "Cooperative and noncooperative R&D in duopoly with spillovers," CORE Discussion Papers RP -823, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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