Do Process Innovations Induce Product Ones?
We study the relationship between process and product innovations in vertically differentiated duopolies. A process innovation can lead two competing firms to improve the quality of their goods introducing a product innovation. In fact, a cost reducing innovation has two effects: it spurs production and it enhances price competition. The former effect induces both firms to increase quality. The latter encourages differentiation, inducing low quality firm to decrease it. Therefore, high quality firm always improves its quality, while the other may or may not. The prevailing effect depends on the nature of quality costs (fixed or variable).
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- Swapnendu Bandyopadhyay & Rajat Acharyya, 2004. "Process and Product Innovation: Complementarity in a Vertically Differentiated Monopoly with Discrete Consumer Types," The Japanese Economic Review, Japanese Economic Association, vol. 55(2), pages 175-200.
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"Process and product innovation in a vertically differentiated monopoly,"
Elsevier, vol. 68(3), pages 333-337, September.
- L. Lambertini & R. Orsini, 2000. "Process and Product Innovation in a Vertically Differentiated Monoply," Working Papers 367, Dipartimento Scienze Economiche, Universita' di Bologna.
- Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
- 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.
- 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.
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