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Process And Product Innovation In A Vertically Differentiated Industry

Author

Listed:
  • EMANUELE BACCHIEGA

    (Department of Economics, University of Bologna, Piazza Scaravilli 2, 40126 Bologna, Italy)

  • LUCA LAMBERTINI

    (Department of Economics, University of Bologna, Strada Maggiore 45, 40125 Bologna, Italy)

  • ANDREA MANTOVAINI

    (Department of Economics, University of Bologna, Strada Maggiore 45, 40125 Bologna, Italy)

Abstract

We examine a vertically differentiated duopoly where firms invest in process and product innovation and then compete in prices under full market coverage. We show that (i) process innovation fosters (hinders) product innovation for the low-quality (high-quality) firm; (ii) the firm which is initially more efficient invests more than the rival in process innovation; (iii) if the initial differential between marginal costs is sufficiently high, the demand for the less efficient firm is nil and the duopoly equilibrium does not exist.

Suggested Citation

  • Emanuele Bacchiega & Luca Lambertini & Andrea Mantovaini, 2011. "Process And Product Innovation In A Vertically Differentiated Industry," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 13(02), pages 209-221.
  • Handle: RePEc:wsi:igtrxx:v:13:y:2011:i:02:n:s0219198911002952
    DOI: 10.1142/S0219198911002952
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    Cited by:

    1. 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.
    2. Andrea Mantovani, 2006. "Complementarity between product and process innovation in a monopoly setting," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 15(3), pages 219-234.

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    More about this item

    Keywords

    Vertical differentiation; quality; R&D; L13; O31;
    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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