Product differentiation, competitive pressure and the effects of innovation on the success and survivability of firms in oligopoly markets
AbstractIn a recent paper Tishler and Milstein (2009) fiâ€¦nd that increased competition may increase aggregate R&D spending while market output decreases. Therefore, they obtain the surprising result that R&D spending is excessive when competition becomes intense. Their result is based on the standard linear demand function for differentiated products introduced by Bowley (1924) where decreased product differentiation is interpreted as more competitive pressure. In this paper I show that at an aggregate level this interpretation is problematic because equilibrium effects are dominated by a demand reduction effect. A slight modifiâ€¦cation of the standard demand function eliminates this effect. For the Tishler and Milstein (2009) setting it is shown that then increased competition increases both R&D spending and aggregate market output. Therefore, at least for consumers, more intense competition increases welfare. Journal of Economic Literature Classiâ€¦fication Numbers: D43, L1, O3. Keywords: Oligopoly markets, Product differentiation, Competitive pressure.
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Bibliographic InfoPaper provided by Universitat Rovira i Virgili, Department of Economics in its series Working Papers with number 2072/151550.
Date of creation: 2010
Date of revision:
Oligopolis; Diferenciació de productes; Competència econòmica; Tecnologia -- Innovacions; Rendiment; 33 - Economia;
Find related papers by JEL classification:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
- O3 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights
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