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R&D intensity and Vertical Differentiation

Author

Listed:
  • Ricardo D. Brito

  • Eduardo Correia de Souza

  • Rodrigo Moita

Abstract

Product market characteristics vary considerably across R&D intensity-based "technology levels" of the OECD-STI taxonomy, as well as across categories of the Rauch (1999) classification. Both higher technology and more differentiated products display lower price elasticity of demand and longer quality ladders. However, variety proliferation decreases with the technology level and increases with the Rauch category, while price dispersion increases with technology but not with the Rauch. Additionally, Rauch categories do not differ in factor intensities, while higher tech industries are more capital intensive than lower tech ones. From this evidence, we conclude that R&D intensity is an appropriate measure of vertical differentiation, while the Rauch classification mainly captures horizontal differentiation.

Suggested Citation

  • Ricardo D. Brito & Eduardo Correia de Souza & Rodrigo Moita, 2021. "R&D intensity and Vertical Differentiation," Working Papers, Department of Economics 2021_16, University of São Paulo (FEA-USP).
    • Handle: RePEc:spa:wpaper:2021wpecon16
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    References listed on IDEAS

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    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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