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Minimum quality standards and novelty requirements in a one-short development race

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  • Prokop, Jacek
  • Regibeau, Pierre
  • Rockett, Katharine

Abstract

We examine the timing and quality of product introduction in an R&D stopping game, where we allow for horizontal and vertical differentiation in the product market. We observe that discontinuous changes in introduction dates can occur as firms' abilities as researchers change. Further, when the research abilities of the firms differ, either the high ability firm or the low ability firm may be the first mover. The underlying research abilities of the firms determine the social optimality of the entry patterns we observe. Minimum quality standards and novelty requirements can play a role in correcting these suboptimal patterns of entry. While minimum quality standards increase welfare for a large range of research abilities, we find that increasing the novelty requirement does not necessarily increase either the profits or, consequently, the research investment incentives of the initial innovator, contrary to much of the cumulative innovation literature. Indeed, as the effect of policy interventions differs significantly across industries where quality improvement is steep and those where it is flat, targeted policies towards specific industries as are often observed in minimum quality standards are generally preferable to more broad-based policies.

Suggested Citation

  • Prokop, Jacek & Regibeau, Pierre & Rockett, Katharine, 2010. "Minimum quality standards and novelty requirements in a one-short development race," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 4, pages 1-49.
  • Handle: RePEc:zbw:ifweej:201015
    DOI: 10.5018/economics-ejournal.ja.2010-15
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    Cited by:

    1. Regibeau Pierre M & Rockett Katharine E, 2006. "Administrative Delays as Barriers to Trade," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(1), pages 1-47, September.
    2. Regibeau, Pierre & Rockett, Katherine E., 1996. "The timing of product introduction and the credibility of compatibility decisions," International Journal of Industrial Organization, Elsevier, vol. 14(6), pages 801-823, October.
    3. Rockett, Katharine, 2012. "Perspectives on the knowledge-based society: An introduction to the special issue," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 6, pages 1-22.

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    More about this item

    Keywords

    Innovation; minimum quality standards; novelty requirements; stopping game;
    All these keywords.

    JEL classification:

    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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