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Trash It Or Sell It? A Strategic Analysis Of The Market Introduction Of Product Innovations

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    (Department of Business Administration, and Economics and Institute of Mathematical Economics, Bielefeld University, P.O. Box 100131, 33501 Bielefeld, Germany)



    (Institute of Organization and Economics of Institutions, University of Graz, Universitaetsstrasse 15, 8010 Graz, Austria)



    (Institute of Management Science, Vienna University of Technology, Theresianumgasse 27, 1040 Vienna, Austria)

In this paper a quantity-setting duopoly is considered where one firm develops a new product which is horizontally differentiated from the existing product. The main question examined is which strategically important effects occur if the decision to develop the innovation and the decision to introduce the new product in the market are separated. In our multi-stage game the firm's launch decision is explicitly taken into account. We find an equilibrium where the competitor of the potential innovator strategically over-invests in process innovation in order to push the potential innovator to introduce the new product since this reduces competition for the existing product. It is shown that this effect has positive welfare implications in comparison with the case where the innovator commits ex ante to launching the new product.

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Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Game Theory Review.

Volume (Year): 11 (2009)
Issue (Month): 03 ()
Pages: 321-345

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Handle: RePEc:wsi:igtrxx:v:11:y:2009:i:03:p:321-345
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