Product and Process Innovations in a Horizontally Differentiated Product Market
For horizontal product differentiation, the paper examines the effects of the level of competition on the firm's decision between a product and process innovation. When firms have to choose between the two types of innovation, it is demonstrated that both firms undertake the product innovation when the competition is intense, they choose different investment projects in intermediate competition, and they pursue cost--reducing innovations when competition is less intense. If firms may pursue both innovations, they mix the types depending on the innovation cost structure. Again, firms incur higher costs into product innovations, when the competition is initially intense.
|Date of creation:||Nov 2001|
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- Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc.
- Boone, Jan, 2001. "Intensity of competition and the incentive to innovate," International Journal of Industrial Organization, Elsevier, vol. 19(5), pages 705-726, April.
- CREMER, Helmuth & THISSE, Jacques-François, "undated".
"Location models of horizontal differentiation: a special case of vertical differentiation models,"
CORE Discussion Papers RP
931, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Cremer, Helmuth & Thisse, Jacques-Francois, 1991. "Location Models of Horizontal Differentiation: A Special Case of Vertical Differentiation Models," Journal of Industrial Economics, Wiley Blackwell, vol. 39(4), pages 383-390, June.
- Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
- Rosenkranz, Stephanie, 1995. "Innovation and cooperation under vertical product differentiation," International Journal of Industrial Organization, Elsevier, vol. 13(1), pages 1-22, March.
- Martin Peitz, 1999.
"A difficulty with the address models of product differentiation,"
Springer;Society for the Advancement of Economic Theory (SAET), vol. 14(3), pages 717-727.
- Martin Peitz, 1998. "- A Difficulty With The Address Models Of Product Differentiation," Working Papers. Serie AD 1998-21, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
- 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.
- Greenstein, Shane & Ramey, Garey, 1998. "Market structure, innovation and vertical product differentiation," International Journal of Industrial Organization, Elsevier, vol. 16(3), pages 285-311, May.
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