IDEAS home Printed from
   My bibliography  Save this article

Product diffusion and pricing with market frictions


  • Theodore Palivos

    (Department of Economics, Louisiana State University, Baton Rouge, LA 70803-6306, USA)

  • Derek Laing

    (Department of Economics, The Pennsylvania State University, University Park, PA 16802-3306, USA)

  • Ping Wang

    () (Department of Economics, Vanderbilt University, Nashville, TN 37235, USA)


We study pricing and product diffusion in a dynamic general equilibrium framework with product market frictions. Ongoing R&D activity leads, with an endogenously determined probability, to continual improvements in product quality. We characterize the steady-state equilibrium with endogenous product diffusion in which a number of different goods co-exist on the quality ladder. We show that the severity of the economy's market frictions is a crucial determinant of the pricing structure, the product diffusion pattern, the level of R&D investment, the rate of endogenous growth, the length of Schumpeterian product cycles and the possibility of multiple growth paths. Eliminating market frictions leads to a degenerate product ladder of precisely one step, containing only the most recent product, as in the monopolistic competition literature.

Suggested Citation

  • Theodore Palivos & Derek Laing & Ping Wang, 2002. "Product diffusion and pricing with market frictions," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 19(4), pages 707-736.
  • Handle: RePEc:spr:joecth:v:19:y:2002:i:4:p:707-736
    Note: Received: August 16, 1999; revised version: March 6, 2001

    Download full text from publisher

    File URL:
    Download Restriction: Access to the full text of the articles in this series is restricted

    As the access to this document is restricted, you may want to search for a different version of it.


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Laing, Derek & Palivos, Theodore & Wang, Ping, 2003. "The economics of 'new blood'," Journal of Economic Theory, Elsevier, vol. 112(1), pages 106-156, September.
    2. Becsi, Zsolt & Li, Victor E. & Wang, Ping, 2005. "Heterogeneous borrowers, liquidity, and the search for credit," Journal of Economic Dynamics and Control, Elsevier, vol. 29(8), pages 1331-1360, August.
    3. Chang, Chia-Ying, 2012. "The role of market frictions on the price differential: A search-theoretical approach," Working Paper Series 2064, Victoria University of Wellington, School of Economics and Finance.

    More about this item


    Market frictions; Product diffusion; Vertical innovations; Schumpeterian growth.;

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:joecth:v:19:y:2002:i:4:p:707-736. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla) or (Rebekah McClure). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.