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The Impact of R&D Subsidies on the Introduction of New Products by Incumbent Firms old title -(New Product Introduction by Incumbent Firms)

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  • Ralph Siebert

Abstract

This paper analyzes the impact of R&D subsidies on incumbent firms to introduce new goods. We are especially interested in investigating various consequences of government subsidies for R&D, provided to firms that o.er products of di.erent qualities. This study examines the incentives of incumbent firms to introduce new products of various quality, their prices, as well as the product variety o.ered on the market. We find that the innovator always introduces a new product of higher quality and withdraws the existing product from the market. Providing an R&D subsidy to a high-quality firm results in a new product with higher quality than an R&D subsidy provided to a low-quality firm, at the expense of all consumers paying higher prices for all goods in the market. When the R&D subsidy is small, the low quality firm may not introduce a new product into the market, given that R&D costs for quality improvement are high and the degree of product differentiation is small. ZUSAMMENFASSUNG - (Neue Produkteinführung etablierter Unternehmen) In dieser Studie untersuchen wir die Anreize etablierter Unternehmen, neue Produkte mit unterschiedlicher Qualität in den Markt einzuführen. Wir betrachten ein Duopol, in dem jedes Unternehmen ein Produkt mit unterschiedlicher Qualität anbietet und nehmen an, daß ein technologischer Fortschritt die Produktionstechnologie eines Unternehmens (der potentielle Innovator) beeinflußt, um ein neues Produkt in den Markt einzuführen. Der Innovator hat die Möglichkeit das alte Produkt vom Markt abzuziehen. Wir zeigen, daß die Entscheidung, ein neues Produkt in den Markt einzuführen, von den Produktionskosten für Qualität, und den vorigen Produktqualitäten abhängt. Der Innovator führt ein neues Produkt mit höherer Qualität ein und zieht das alte Produkt aus dem Markt,um einen höheren Preiswettbewerb und einen Nachfrageverdrängungseffekt zu vermeiden. Folglich werden nur zwei Produkte im Markt angeboten.

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Bibliographic Info

Paper provided by Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) in its series CIG Working Papers with number FS IV 99-19.

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Length: 22 pages
Date of creation: Oct 1999
Date of revision: Aug 2003
Handle: RePEc:wzb:wzebiv:fsiv99-19

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Related research

Keywords: Asymmetric Firms; Innovation; New Product Introduction; Subsidies; Technology Policy; Vertical Product Differentiation.;

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References

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  1. GABSZEWICZ, Jean J. & THISSE, Jacques-François, . "Price competition, quality and income disparities," CORE Discussion Papers RP -370, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  9. Heidrun C. Hoppe & Ulrich Lehmann-Grube, 2001. "Second-Mover Advantages in Dynamic Quality Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(3), pages 419-433, 09.
  10. Ulrich Lehmann-Grube, 1997. "Strategic Choice of Quality When Quality is Costly: The Persistence of the High-Quality Advantage," RAND Journal of Economics, The RAND Corporation, vol. 28(2), pages 372-384, Summer.
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  13. Aron, Debra J & Lazear, Edward P, 1990. "The Introduction of New Products," American Economic Review, American Economic Association, vol. 80(2), pages 421-26, May.
  14. Champsaur, Paul & Rochet, Jean-Charles, 1989. "Multiproduct Duopolists," Econometrica, Econometric Society, vol. 57(3), pages 533-57, May.
  15. Choi, Chong Ju & Shin, Hyun Song, 1992. "A Comment on a Model of Vertical Product Differentiation," Journal of Industrial Economics, Wiley Blackwell, vol. 40(2), pages 229-31, June.
  16. Lerner, Josh, 1999. "The Government as Venture Capitalist: The Long-Run Impact of the SBIR Program," The Journal of Business, University of Chicago Press, vol. 72(3), pages 285-318, July.
  17. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Wiley Blackwell, vol. 49(1), pages 3-13, January.
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