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Strategic Choice Between Process And Product Innovation Under Different Competitive Regimes

Author

Listed:
  • LUIGI FILIPPINI

    (Istituto di Teoria Economica e Metodi Quantitativi, Università Cattolica, Largo Gemelli, 1 Milano, 20123, Italy)

  • GIANMARIA MARTINI

    (Dipartimento di Ingegneria Gestionale, Viale Marconi, 5 DALMINE, 24044 (BG), Italy)

Abstract

This paper investigates the strategic choice between introducing a process or a product innovation in a duopoly model with vertical differentiation, comparing the outcomes in case of Bertrand and Cournot competition. It is shown that under both competitive regimes three equilibria in innovation adoption may arise: two symmetric equilibria, where firms select the same innovation type, and one asymmetric equilibrium. The competitive regime has an impact on the features of the asymmetric equilibrium, since in case of Bertrand competition, the high (low) quality firm chooses a product (process) innovation, while firms make the opposite choices in case of Cournot competition. The presence of a leapfrogging effect (only in the Cournot case) explains these different outcomes. Last, we find that the Cournot competitors tend to favor the introduction of a new product in comparison with the Bertrand competitors.

Suggested Citation

  • Luigi Filippini & Gianmaria Martini, 2010. "Strategic Choice Between Process And Product Innovation Under Different Competitive Regimes," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 12(02), pages 139-159.
    • Handle: RePEc:wsi:igtrxx:v:12:y:2010:i:02:n:s0219198910002568
    DOI: 10.1142/S0219198910002568
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    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. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, April.
    4. Esther Gal-Or, 1983. "Quality and Quantity Competition," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 590-600, Autumn.
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    Cited by:

    1. Enrico Bellino, 2012. "Pasinetti on Ricardo," DISCE - Quaderni dell'Istituto di Teoria Economica e Metodi Quantitativi itemq1258, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    2. Stefano Colombo & Luigi Filippini, 2019. "The choice between product and logistic innovation in a spatial model with income distribution," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 46(4), pages 609-627, December.
    3. Brunelle Marche & Vincent Boly & Roland Ortt, 2016. "Observing New Product Impacts On Sectors Value Chains: The Case Of A French Electronic Sme," Post-Print hal-01891016, HAL.
    4. Jochen Manegold, 2016. "Stackelberg Competition among Intermediaries in a Differentiated Duopoly with Product Innovation," Working Papers CIE 98, Paderborn University, CIE Center for International Economics.
    5. Sonja Brangewitz & Jochen Manegold, 2015. "Competition and Product Innovation of Intermediaries in a Differentiated Duopoly," Working Papers CIE 90, Paderborn University, CIE Center for International Economics.
    6. Prajogo, Daniel I., 2016. "The strategic fit between innovation strategies and business environment in delivering business performance," International Journal of Production Economics, Elsevier, vol. 171(P2), pages 241-249.
    7. Stefano Colombo & Luigi Filippini, 2012. "Product innovation and logistic optimization in a novel urban-type model," DISCE - Quaderni dell'Istituto di Teoria Economica e Metodi Quantitativi itemq1259, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).

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    More about this item

    Keywords

    Vertical differentiation; innovation adoption; competitive regime; 22E46; 53C35; 57S20;
    All these keywords.

    JEL classification:

    • B4 - Schools of Economic Thought and Methodology - - Economic Methodology
    • C0 - Mathematical and Quantitative Methods - - General
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics

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