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Process versus Product Innovation in Multiproduct Firms


  • Iordanis Petsas

    (Department of Economics and Finance, University of Scranton, U.S.A.)

  • Christos Giannikos

    (Department of Economics and Finance, Baruch College, U.S.A. & Columbia University)


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.

Suggested Citation

  • Iordanis Petsas & Christos Giannikos, 2005. "Process versus Product Innovation in Multiproduct Firms," International Journal of Business and Economics, College of Business and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 4(3), pages 231-248, December.
  • Handle: RePEc:ijb:journl:v:4:y:2005:i:3:p:231-248

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    References listed on IDEAS

    1. 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.
    2. 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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    Cited by:

    1. Stamatopoulos, Giorgos & Tauman, Yair, 2008. "Licensing of a quality-improving innovation," Mathematical Social Sciences, Elsevier, vol. 56(3), pages 410-438, November.
    2. Ma, Xin & McSweeney, Peter, 2008. "Product and process innovation in the food processing industry: case study in Guangxi province," Australasian Agribusiness Review, University of Melbourne, Melbourne School of Land and Environment, vol. 16.
    3. Zhao, Dan, 2017. "Choices and impacts of cross-licensing contracts," International Review of Economics & Finance, Elsevier, vol. 48(C), pages 389-405.
    4. Cahill, Sean & Rich, Tabitha & Cozzarin, Brian, 2015. "Innovation in the Canadian Food Processing Industry: Evidence from the Workplace and Employee Survey," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association (IFAMA), vol. 18(2).

    More about this item


    multiproduct firms; differentiated goods; product innovation; process innovation;

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives


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