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Product and Process Flexibility in an Innovative Environment

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  • Susan Athey
  • Armin Schmutzler

Abstract

This article studies several attributes of a firm's long-run decisions about organizational structure, attributes that affect the firm's short-run innovative activity. We focus on flexibility, which lowers the future costs of implementing innovations, and research capabilities, which improve the future opportunities for innovation. We consider two dimentsions of innovation: demand-enhancing (product) and cost-reducing (process). These two types of innovation are complementary in terms of increasing the firm's net revenue in the short run. The complementarities between the firm's short-run decision variables then lead to complementarities between its long-run decisions about product and process flexibility and research capabilities.

Suggested Citation

  • 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.
  • Handle: RePEc:rje:randje:v:26:y:1995:i:winter:p:557-574
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    References listed on IDEAS

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    Cited by:

    1. Eckel, Carsten & Unger, Florian, 2015. "Credit constraints, endogenous innovations, and price setting in international trade," Discussion Papers in Economics 24858, University of Munich, Department of Economics.
    2. Pan, Xiaojun & Li, Shoude, 2016. "Dynamic optimal control of process–product innovation with learning by doing," European Journal of Operational Research, Elsevier, vol. 248(1), pages 136-145.
    3. Jinyoung Kim, 2015. "Patent Portfolio Management of Sequential Innovations: Theory and Empirics," Discussion Paper Series 1504, Institute of Economic Research, Korea University.
    4. Levin, Mark & Matrosova, Kseniya, 2015. "Innovation management based concidering advertising and complementarity of public and private levels of technology," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 6, pages 109-132.
    5. Jinyoung Kim, 2015. "Patent Portfolio Management of Sequential Inventions: Evidence from US Patent Renewal Data," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 47(2), pages 195-218, September.
    6. Yasushi Asako & Tatsushi Okuda, 2017. "Guiding the Economy Toward the Target Inflation Rate: An Evolutionary Game Theory Approach," IMES Discussion Paper Series 17-E-03, Institute for Monetary and Economic Studies, Bank of Japan.

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