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Process Innovations in a Duopoly with Two Regions

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  • Olof Ejermo

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  • Börje Johansson

    ()

Abstract

We extend previous models of duopolies by introducing regions. This analysis highlights how incentives to conduct process R&D are affected by increasing regional distance, and the effect that agglomeration (in terms of population) has on two firms producing a high- and low-quality good respectively. We find that, under reasonable assumptions, an increase in transport costs (regional distance), raises the incentive to conduct process R&D for the high-quality good, while the reverse is true for the low-quality good. Transport costs generally lower production. We interpret this result to arise because the high quality good can more easily regain (some) market output, due to its high quality, which gives an impetus for process R&D. The second result is that an increase in agglomeration in the high-quality region, lowers the incentive to conduct process R&D for the high-quality good, while the opposite is true for the low-quality good. This seems consistent with a view of spatial product life-cycles where process R&D is increasingly moved to 'peripheral' regions as agglomerative tendencies continue in high-quality output regions.

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Bibliographic Info

Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa03p265.

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Date of creation: Aug 2003
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Handle: RePEc:wiw:wiwrsa:ersa03p265

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  1. Boyan Jovanovic & Glenn MacDonald, 1993. "The Life-Cycle of a Competitive Industry," NBER Working Papers 4441, National Bureau of Economic Research, Inc.
  2. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
  3. 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.
  4. d'Aspremont, Claude & Jacquemin, Alexis, 1988. "Cooperative and Noncooperative R&D in Duopoly with Spillovers," American Economic Review, American Economic Association, vol. 78(5), pages 1133-37, December.
  5. 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.
  6. Utterback, James M & Abernathy, William J, 1975. "A dynamic model of process and product innovation," Omega, Elsevier, vol. 3(6), pages 639-656, December.
  7. 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.
  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. 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.
  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. Charlie Karlsson, 1997. "Product development, innovation networks, infrastructure and agglomeration economies," The Annals of Regional Science, Springer, vol. 31(3), pages 235-258.
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