For horizontal product differentiation, the paper examines the effects of the level of competition on the firm's decision between a product and process innovation. When firms have to choose between the two types of innovation, it is demonstrated that both firms undertake the product innovation when the competition is intense, they choose different investment projects in intermediate competition, and they pursue cost--reducing innovations when competition is less intense. If firms may pursue both innovations, they mix the types depending on the innovation cost structure. Again, firms incur higher costs into product innovations, when the competition is initially intense.
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Publisher Info
Paper provided by Institute for Economic Policy, Cologne, Germany in its series IWP Discussion Paper Series with number
07/2001.
Find related papers by JEL classification: L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
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