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A framework for non-drastic innovation with product differentiation

Author

Listed:
  • Jeremy Jay Jackson

    () (North Dakota State University)

  • Jason Smith

    () (Utah State University)

Abstract

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.

Suggested Citation

  • Jeremy Jay Jackson & Jason Smith, 2015. "A framework for non-drastic innovation with product differentiation," Economics Bulletin, AccessEcon, vol. 35(1), pages 259-269.
  • Handle: RePEc:ebl:ecbull:eb-15-00128
    as

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    File URL: http://www.accessecon.com/Pubs/EB/2015/Volume35/EB-15-V35-I1-P29.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. 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.
    3. 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.
    4. Jerry R. Green & Suzanne Scotchmer, 1995. "On the Division of Profit in Sequential Innovation," RAND Journal of Economics, The RAND Corporation, vol. 26(1), pages 20-33, Spring.
    5. 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.
    6. 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, March.
    7. 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.
    8. Wang, X. Henry, 1998. "Fee versus royalty licensing in a Cournot duopoly model," Economics Letters, Elsevier, vol. 60(1), pages 55-62, July.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    non-drastic innovation; product differentiation;

    JEL classification:

    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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