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Strategic Choice between Process and Product Innovation under Different Competitive Regimes

Author

Listed:
  • Luigi Filippini

    () (DISCE, Università Cattolica di Milano)

  • Gianmaria Martini

    () (Università di Bergamo)

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 competitors tend to favor the introduction of a new product in comparison with the Bertrand competitors.

Suggested Citation

  • Luigi Filippini & Gianmaria Martini, 2009. "Strategic Choice between Process and Product Innovation under Different Competitive Regimes," DISCE - Quaderni dell'Istituto di Teoria Economica e Metodi Quantitativi itemq0953, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  • Handle: RePEc:ctc:serie6:itemq0953
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    File URL: http://www.unicatt.it/Istituti/TeoriaEconomica/Quaderni/itemq0953.pdf
    File Function: First version, March, 2007
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    References listed on IDEAS

    as
    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, January.
    2. Wauthy, Xavier, 1996. "Quality Choice in Models of Vertical Differentiation," Journal of Industrial Economics, Wiley Blackwell, vol. 44(3), pages 345-353, September.
    3. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
    4. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. 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.
    2. 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).
    3. 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.
    4. 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).

    More about this item

    Keywords

    vertical differentiation; innovation adoption; process and product innovation; competitive regime.;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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