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Complementarity between Product and Process innovation in a Monopoly Setting

  • A. Mantovani

In this article we study complementarity between market-enhancing product innovation and cost-reducing process innovation in a monopoly setting. First, we consider the possibility for a firm to alternatively invest only along one of the two directions and compare the incentives of process vs. product innovation. Then, we allow the firm to invest simultaneously in both activities, showing that both investment levels and profit are higher than in the case of individual investment. Thus, product and process innovations are complementary, and the firm always prefers the simultaneous adoption of both activities.

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Paper provided by Dipartimento Scienze Economiche, Universita' di Bologna in its series Working Papers with number 533.

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Date of creation: 2005
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Handle: RePEc:bol:bodewp:533
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  1. Amir, Rabah, 1996. "Cournot Oligopoly and the Theory of Supermodular Games," Games and Economic Behavior, Elsevier, vol. 15(2), pages 132-148, August.
  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. Hallam, Arne, 1999. "Industrial Organization: Contemporary Theory and Practice (Instructor's Manual--Text by L. Pepall, D. J. Richards, and G. Norman)," Staff General Research Papers 5310, Iowa State University, Department of Economics.
  4. Klepper, Steven, 1996. "Entry, Exit, Growth, and Innovation over the Product Life Cycle," American Economic Review, American Economic Association, vol. 86(3), pages 562-83, June.
  5. d'Aspremont, Claude & Jacquemin, Alexis, 1988. "Cooperative and Noncooperative R&D in Duopoly with Spillovers," American Economic Review, American Economic Association, vol. 78(5), pages 1133-37, December.
  6. Rosenkranz, Stephanie, 2003. "Simultaneous choice of process and product innovation when consumers have a preference for product variety," Journal of Economic Behavior & Organization, Elsevier, vol. 50(2), pages 183-201, February.
  7. Utterback, James M & Abernathy, William J, 1975. "A dynamic model of process and product innovation," Omega, Elsevier, vol. 3(6), pages 639-656, December.
  8. Qiu, Larry D., 1997. "On the Dynamic Efficiency of Bertrand and Cournot Equilibria," Journal of Economic Theory, Elsevier, vol. 75(1), pages 213-229, July.
  9. Lin, Ping & Saggi, Kamal, 2002. "Product differentiation, process R&D, and the nature of market competition," European Economic Review, Elsevier, vol. 46(1), pages 201-211, January.
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  11. Mukesh Eswaran & Nancy Gallini, 1996. "Patent Policy and the Direction of Technological Change," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 722-746, Winter.
  12. 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.
  13. Susan Athey & Armin Schmutzler, 1995. "Product and Process Flexibility in an Innovative Environment," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 557-574, Winter.
  14. Lambertini, Luca & Orsini, Raimondello, 2000. "Process and product innovation in a vertically differentiated monopoly," Economics Letters, Elsevier, vol. 68(3), pages 333-337, September.
  15. Cohen, Wesley M & Klepper, Steven, 1996. "Firm Size and the Nature of Innovation within Industries: The Case of Process and Product R&D," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 232-43, May.
  16. L. Lambertini, 2000. "The Monopolist's Optimal R&D Portfolio," Working Papers 391, Dipartimento Scienze Economiche, Universita' di Bologna.
  17. Milgrom, Paul & Roberts, John, 1990. "The Economics of Modern Manufacturing: Technology, Strategy, and Organization," American Economic Review, American Economic Association, vol. 80(3), pages 511-28, June.
  18. Milgrom, Paul & Roberts, John, 1995. "Complementarities and fit strategy, structure, and organizational change in manufacturing," Journal of Accounting and Economics, Elsevier, vol. 19(2-3), pages 179-208, April.
  19. Luca Lambertini, 2004. "Process and product R&D by a multiproduct monopolist: a reply to Lin," Oxford Economic Papers, Oxford University Press, vol. 56(4), pages 745-749, October.
  20. Ron Adner & Daniel Levinthal, 2001. "Demand Heterogeneity and Technology Evolution: Implications for Product and Process Innovation," Management Science, INFORMS, vol. 47(5), pages 611-628, May.
  21. Pia Weiss, 2002. "Adoption of Product and Process Innovations in Differentiated," Industrial Organization 0212002, EconWPA.
  22. Vives, Xavier, 1990. "Nash equilibrium with strategic complementarities," Journal of Mathematical Economics, Elsevier, vol. 19(3), pages 305-321.
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