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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 productinnovations if they produce close substitutes (so competition is severe) andfavor process innovations if products are differentiated (so competition isless severe). Assumptions on the strategic complementarity of product andprocess innovations and on the decreasing returns of a product innovationare found to be the critical assumptions in the sense of Milgrom and Roberts (1994). Copyright Kluwer Academic Publishers 2003

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

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

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Handle: RePEc:kap:revind:v:23:y:2003:i:3:p:301-314
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  1. 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.
  2. 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.
  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. Boone, Jan, 2001. "Intensity of competition and the incentive to innovate," International Journal of Industrial Organization, Elsevier, vol. 19(5), pages 705-726, April.
  5. 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.
  6. Milgrom, Paul & Roberts, John, 1994. "Comparing Equilibria," American Economic Review, American Economic Association, vol. 84(3), pages 441-59, June.
  7. 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.
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