Process versus Product Innovation in Multiproduct Firms
This paper develops a differentiated-goods duopoly model in which firms engage in Cournot-Nash quantity competition. The effects of firm size on the choice of R&D effort between process and product innovation are examined. We find that (a) as firms devote more effort to product innovation, given that they are in the product R&D regime, their incentives to switch from product to process innovation increase, and (b) once the firm is in the process R&D regime, it will perform process R&D indefinitely.
Volume (Year): 4 (2005)
Issue (Month): 3 (December)
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- Susan Athey & Armin Schmutzler, 1995. "Product and Process Flexibility in an Innovative Environment," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 557-574, Winter.
- Klepper, Steven, 1996. "Entry, Exit, Growth, and Innovation over the Product Life Cycle," American Economic Review, American Economic Association, vol. 86(3), pages 562-583, June.
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