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Process and Product Innovation and the Role of the Preference Function


  • Hoefele Andreas

    (Competition and Markets Authority (UK))


In this paper I investigate the relationship between firms’ investment in product and process innovation, in particular how this relationship is affected by the consumer’s valuation for variety. Depending on the strength of the consumer’s value of variety, the aggregate demand increases with a higher degree of product innovation, which I call the market-expansion effect. I show that the two types of investment are positively related if the market expansion effect is strong.

Suggested Citation

  • Hoefele Andreas, 2016. "Process and Product Innovation and the Role of the Preference Function," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(4), pages 1-5, October.
  • Handle: RePEc:bpj:bejeap:v:16:y:2016:i:4:p:5:n:1
    DOI: 10.1515/bejeap-2013-0132

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    References listed on IDEAS

    1. Qiu, Larry D. & Zhou, Wen, 2013. "Multiproduct firms and scope adjustment in globalization," Journal of International Economics, Elsevier, vol. 91(1), pages 142-153.
    2. Debasmita Basak & Andreas Hoefele & Arijit Mukherjee, 2014. "Union Bargaining Power and Product Innovation: Relevance of the Preference Function," CESifo Working Paper Series 5007, CESifo.
    3. 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.
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