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

  • Pia Weiss

    ()

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).

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Article provided by Springer in its journal Review of Industrial Organization.

Volume (Year): 23 (2003)
Issue (Month): 3_4 (December)
Pages: 301-314

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Handle: RePEc:kap:revind:v:23:y:2003:i:3_4:p:301-314
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100336

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  1. 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.
  2. Bester, H. & Petrakis, E., 1991. "The Incentives for Cost Reduction in a Differentiated Industry," Discussion Paper 1991-36, Tilburg University, Center for Economic Research.
  3. Rosenkranz, Stephanie, 1995. "Innovation and cooperation under vertical product differentiation," International Journal of Industrial Organization, Elsevier, vol. 13(1), pages 1-22, March.
  4. 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.
  5. Boone, Jan, 2001. "Intensity of competition and the incentive to innovate," International Journal of Industrial Organization, Elsevier, vol. 19(5), pages 705-726, April.
  6. Milgrom, Paul & Roberts, John, 1994. "Comparing Equilibria," American Economic Review, American Economic Association, vol. 84(3), pages 441-59, June.
  7. 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.
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