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On the Relationship between Competition and Innovation in a Duopoly with a Single Innovator

Author

Listed:
  • You-hua Chen

    (South China Agricultural University)

  • Pu-yan Nie

    (Jinan University)

  • X. Henry Wang

    (University of Missouri-Columbia)

Abstract

This paper studies the incentive by a single firm in a differentiated goods duopoly to engage in cost-reducing innovations and how this incentive is affected by the level of competition in the product market. It is found that a firm's innovation effort has a U-shaped relationship with the level of competition. This result generally holds true for both the initially more efficient firm and the initially less efficient firm and in both the open loop model and the closed loop model. Consumers always benefit from innovations and fare the best when the initially more efficient firm is the innovator.

Suggested Citation

  • You-hua Chen & Pu-yan Nie & X. Henry Wang, 2013. "On the Relationship between Competition and Innovation in a Duopoly with a Single Innovator," Economics Bulletin, AccessEcon, vol. 33(4), pages 2648-2660.
    • Handle: RePEc:ebl:ecbull:eb-13-00366
    as

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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    innovation; competition; asymmetric duopoly; differentiated goods;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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