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Firm Growth by Product Innovation in the Presence of the Product Life Cycle

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  • Hiroki MURAKAMI

Abstract

In this paper, we present a model which enables us to look into the process of research and development (R&D) for product innovation in the presence of the product life cycle and the resultant firm or economic growth. Specifically, we describe R&D for product innovation as an activity to control the birth rate of a new product, which measures the probability of product innovation; derive the optimal birth rate of a new product, which determines the size of R&D expenditure; and examine the growth rate of the (representative) firm('s expected total revenue) along the optimal R&D plan. We then find that the growth rate of the firm converges to the optimal birth rate of a new product in the long run.

Suggested Citation

  • Hiroki MURAKAMI, 2016. "Firm Growth by Product Innovation in the Presence of the Product Life Cycle," Discussion papers 16032, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:16032
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    References listed on IDEAS

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