Innovation incentives in an intergrated marketed with vertical product differentiation
AbstractThis paper examines whether integration of national markets fosters innovation in the technologically inferior country. In a simple set up where a technologically backward home firm and a technologically advanced foreign firm compete in qualities and prices in an integrated market, we find that the outcome depends on the speed of response of the two firms and their initial technological distance. If the domestic firm is not too far behind the foreign firm to begin with, and if it responds faster, then the technological gap may get reversed. Further, we find that integration may be welfare improving for both the countries. There are, however, distributional implications. While the consumers always gain from such integration, the firms may not.
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Bibliographic InfoPaper provided by Indian Statistical Institute, New Delhi, India in its series Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers with number 06-02.
Length: 23 pages
Date of creation: Feb 2006
Date of revision:
Innovation; Technological Gap; Market Integration; Quality Competition;
Find related papers by JEL classification:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- F15 - International Economics - - Trade - - - Economic Integration
- O33 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
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