Innovation and Product Differentiation
AbstractEconomic theory has primarily viewed an innovation as a single, discontinuous change. Historical and empirical evidence, on the other hand, shows improvements to original technologies and quality additions to early products. We focus analysis on competition in post-discovery phase, emphasizing in particular that a key dimension to this competition is the innovations that lead to product differentiation and quality improvement. In a duopoly model with a single adoption choice, we derive endogenously the level and diversity of product innovations. We demonstrate the existence of equilibria in which firms emerge at different points of the quality spectrum. In such equilibria, no monopoly rent is dissipated and later innovators make more profits. Incumbent firms may well be the early innovators, contrary to the predictions of diversity, learning and market lock-in, in determining market expectations and hence the innovation outcomes is analyzed. Finally, innovative incentives under a cartel and social planner are contrasted with the duopoly outcomes.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 894.
Date of creation: Mar 1990
Date of revision:
Contact details of provider:
Postal: Center for Mathematical Studies in Economics and Management Science, Northwestern University, 580 Jacobs Center, 2001 Sheridan Road, Evanston, IL 60208-2014
Web page: http://www.kellogg.northwestern.edu/research/math/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kohlberg, Elon & Mertens, Jean-Francois, 1986.
"On the Strategic Stability of Equilibria,"
Econometric Society, vol. 54(5), pages 1003-37, September.
- Reinganum, Jennifer F., .
"On the Diffusion of New Technology: A Game Theoretic Approach,"
312, California Institute of Technology, Division of the Humanities and Social Sciences.
- Reinganum, Jennifer F, 1981. "On the Diffusion of New Technology: A Game Theoretic Approach," Review of Economic Studies, Wiley Blackwell, vol. 48(3), pages 395-405, July.
- Katz, Michael L & Shapiro, Carl, 1987. "R&D Rivalry with Licensing or Imitation," American Economic Review, American Economic Association, vol. 77(3), pages 402-20, June.
- Loury, Glenn C, 1979.
"Market Structure and Innovation,"
The Quarterly Journal of Economics,
MIT Press, vol. 93(3), pages 395-410, August.
- Harris, Christopher & Vickers, John, 1985. "Perfect Equilibrium in a Model of a Race," Review of Economic Studies, Wiley Blackwell, vol. 52(2), pages 193-209, April.
- Fudenberg, Drew & Gilbert, Richard & Stiglitz, Joseph & Tirole, Jean, 1983. "Preemption, leapfrogging and competition in patent races," European Economic Review, Elsevier, vol. 22(1), pages 3-31, June.
- Lee, Tom & Wilde, Louis L, 1980. "Market Structure and Innovation: A Reformulation," The Quarterly Journal of Economics, MIT Press, vol. 94(2), pages 429-36, March.
- Mansfield, Edwin & Schwartz, Mark & Wagner, Samuel, 1981. "Imitation Costs and Patents: An Empirical Study," Economic Journal, Royal Economic Society, vol. 91(364), pages 907-18, December.
- Prajit K. Dutta & Aldo Rustichini, 1990.
"(s,S) Equilibria in Stochastic Games with an Application to Product Innovations,"
916, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Dutta, P. & Rustichini, A., 1991. "(s,S) Equilibria in Stochastic games with an Application to Product Innovations," RCER Working Papers 259, University of Rochester - Center for Economic Research (RCER).
- Dutta, P.K. & Rustichini, A., 1991. "(s,S) Equilibria in Stochastic games with an Application to Product Innovations," Discussion Papers 1991_36, Columbia University, Department of Economics.
- Prajit K. Dutta & Saul Lach & Aldo Rustichini, 1993.
"Better Late Than Early: Vertical Differentiation in the Adoption of a New Technology,"
NBER Working Papers
4473, National Bureau of Economic Research, Inc.
- Dutta, Prajit K & Lach, Saul & Rustichini, Aldo, 1995. "Better Late Than Early: Vertical Differentiation in the Adoption of a New Technology," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(4), pages 563-89, Winter.
- Khanna, Tarun, 1995. "Racing behavior technological evolution in the high-end computer industry," Research Policy, Elsevier, vol. 24(6), pages 933-958, November.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Fran Walker).
If references are entirely missing, you can add them using this form.