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A framework for non-drastic innovation with product differentiation

Listed author(s):
  • Jeremy Jay Jackson

    ()

    (North Dakota State University)

  • Jason Smith

    ()

    (Utah State University)

We model non-drastic technological innovation in a duopoly model with differentiated products. We derive profit functions for both firms which depend on only one variable, the technological gap. As our model derives product demands directly from agent utility we are able to fully describe the welfare effects of innovation. We show that the welfare improvements from innovation come not only as firms accrue higher profits, by charging consumers higher prices, but also as consumers enjoy higher quality products.

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File URL: http://www.accessecon.com/Pubs/EB/2015/Volume35/EB-15-V35-I1-P29.pdf
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Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 35 (2015)
Issue (Month): 1 ()
Pages: 259-269

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Handle: RePEc:ebl:ecbull:eb-15-00128
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  1. Stavroula Malla & Richard Gray, 2005. "The Crowding Effects of Basic and Applied Research: A Theoretical and Empirical Analysis of an Agricultural Biotech Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(2), pages 423-438.
  2. Hopenhayn, Hugo A & Mitchell, Matthew F, 2001. "Innovation Variety and Patent Breadth," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 152-166, Spring.
  3. Gene M. Grossman & Elhanan Helpman, 1991. "Quality Ladders in the Theory of Growth," Review of Economic Studies, Oxford University Press, vol. 58(1), pages 43-61.
  4. Morton I. Kamien & Yair Tauman, 1986. "Fees Versus Royalties and the Private Value of a Patent," The Quarterly Journal of Economics, Oxford University Press, vol. 101(3), pages 471-491.
  5. Ted O'Donoghue & Suzanne Scotchmer & Jacques-François Thisse, 1998. "Patent Breadth, Patent Life, and the Pace of Technological Progress," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(1), pages 1-32, 03.
  6. Howard F. Chang, 1995. "Patent Scope, Antitrust Policy, and Cumulative Innovation," RAND Journal of Economics, The RAND Corporation, vol. 26(1), pages 34-57, Spring.
  7. Wang, X. Henry, 1998. "Fee versus royalty licensing in a Cournot duopoly model," Economics Letters, Elsevier, vol. 60(1), pages 55-62, July.
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