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Adoption of Product and Process Innovations in Differentiated Markets: The Impact of Competition

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  • Pia Weiss

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Abstract

The paper examines the effects of the degree of competition on firms' decisions to innovate in differentiated markets. Firms favor product innovations if they produce close substitutes (so competition is severe) and favor process innovations if products are differentiated (so competition is less severe). Assumptions on the strategic complementarity of product and process innovations and on the decreasing returns of a product innovation are found to be the critical assumptions in the sense of Milgrom and Roberts (1994).

Suggested Citation

  • Pia Weiss, 2003. "Adoption of Product and Process Innovations in Differentiated Markets: The Impact of Competition," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 23(3_4), pages 301-314, December.
  • Handle: RePEc:kap:revind:v:23:y:2003:i:3_4:p:301-314
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    References listed on IDEAS

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    1. Rosenkranz, Stephanie, 1995. "Innovation and cooperation under vertical product differentiation," International Journal of Industrial Organization, Elsevier, vol. 13(1), pages 1-22, March.
    2. Rosenkranz, Stephanie, 2003. "Simultaneous choice of process and product innovation when consumers have a preference for product variety," Journal of Economic Behavior & Organization, Elsevier, vol. 50(2), pages 183-201, February.
    3. Bonanno, Giacomo & Haworth, Barry, 1998. "Intensity of competition and the choice between product and process innovation," International Journal of Industrial Organization, Elsevier, vol. 16(4), pages 495-510, July.
    4. Milgrom, Paul & Roberts, John, 1994. "Comparing Equilibria," American Economic Review, American Economic Association, vol. 84(3), pages 441-459, June.
    5. Bester, Helmut & Petrakis, Emmanuel, 1993. "The incentives for cost reduction in a differentiated industry," International Journal of Industrial Organization, Elsevier, vol. 11(4), pages 519-534.
    6. Greenstein, Shane & Ramey, Garey, 1998. "Market structure, innovation and vertical product differentiation," International Journal of Industrial Organization, Elsevier, vol. 16(3), pages 285-311, May.
    7. Boone, Jan, 2001. "Intensity of competition and the incentive to innovate," International Journal of Industrial Organization, Elsevier, vol. 19(5), pages 705-726, April.
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    Citations

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    Cited by:

    1. Hoefele, Andreas, 2016. "Endogenous product differentiation and international R&D policy," International Review of Economics & Finance, Elsevier, vol. 41(C), pages 335-346.
    2. Maria JOSE SILVA & Gastão SOUSA & Jacinta MOREIRA & Jorge SIMÕES, 2011. "Innovation Activities in the Service Sector: Empirical Evidence from Portuguese Firms," Journal of Knowledge Management, Economics and Information Technology, ScientificPapers.org, vol. 1(6), pages 1-17, October.
    3. Cellini, Roberto & Lambertini, Luca & Sterlacchini, Alessandro, 2009. "Managerial incentive and the firms’ propensity to invest in product and process innovation," MPRA Paper 12935, University Library of Munich, Germany.
    4. repec:hal:journl:hal-00918528 is not listed on IDEAS
    5. Jochen Manegold, 2016. "Stackelberg Competition among Intermediaries in a Differentiated Duopoly with Product Innovation," Working Papers CIE 98, Paderborn University, CIE Center for International Economics.
    6. Murat Yildizoglu & M. Rahmouni & Mohamed Ayadi, 2007. "Sectoral patterns of innovation in a developing country: The Tunisian case," Post-Print hal-00394409, HAL.
    7. Sonja Brangewitz & Jochen Manegold, 2015. "Competition and Product Innovation of Intermediaries in a Differentiated Duopoly," Working Papers CIE 90, Paderborn University, CIE Center for International Economics.
    8. Ghosh, Arghya & Kato, Takao & Morita, Hodaka, 2017. "Incremental innovation and competitive pressure in the presence of discrete innovation," Journal of Economic Behavior & Organization, Elsevier, vol. 135(C), pages 1-14.
    9. Luísa Carvalho & Teresa Costa & Jorge Caiado, 2013. "Determinants of innovation in a small open economy: a multidimensional perspective," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 14(3), pages 583-600, June.
    10. Sebastian Braun, 2006. "Trade Liberalisation, Process and Product Innovation, and Relative Skill Demand," JEPS Working Papers 06-004, JEPS.
    11. Bocquet, Rachel & Le Bas, Christian & Mothe, Caroline & Poussing, Nicolas, 2013. "Are firms with different CSR profiles equally innovative? Empirical analysis with survey data," European Management Journal, Elsevier, vol. 31(6), pages 642-654.
    12. Prajogo, Daniel I., 2016. "The strategic fit between innovation strategies and business environment in delivering business performance," International Journal of Production Economics, Elsevier, vol. 171(P2), pages 241-249.
    13. Marc Escrihuela-Villar & Jorge Guillén, 2014. "On the Relationship Between Innovation and Product Market Competition," The Japanese Economic Review, Japanese Economic Association, vol. 65(4), pages 543-557, December.
    14. Das Nilotpal & Falaris Evangelos M & Mulligan James G, 2009. "Vintage Effects and the Diffusion of Time-Saving Technological Innovations," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(1), pages 1-37, June.
    15. Hullova, Dusana & Trott, Paul & Simms, Christopher Don, 2016. "Uncovering the reciprocal complementarity between product and process innovation," Research Policy, Elsevier, vol. 45(5), pages 929-940.
    16. James G. Mulligan & Nilotpal Das, 2005. "Persistent Adoption of Time-Saving Process Innovations," Working Papers 05-03, University of Delaware, Department of Economics.

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