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Product differentiation, competitive pressure and the effects of innovation on the success and survivability of firms in oligopoly markets

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  • Theilen, Bernd, 1965-

Abstract

In a recent paper Tishler and Milstein (2009) fi…nd that increased competition may increase aggregate R&D spending while market output decreases. Therefore, they obtain the surprising result that R&D spending is excessive when competition becomes intense. Their result is based on the standard linear demand function for differentiated products introduced by Bowley (1924) where decreased product differentiation is interpreted as more competitive pressure. In this paper I show that at an aggregate level this interpretation is problematic because equilibrium effects are dominated by a demand reduction effect. A slight modifi…cation of the standard demand function eliminates this effect. For the Tishler and Milstein (2009) setting it is shown that then increased competition increases both R&D spending and aggregate market output. Therefore, at least for consumers, more intense competition increases welfare. Journal of Economic Literature Classi…fication Numbers: D43, L1, O3. Keywords: Oligopoly markets, Product differentiation, Competitive pressure.

Suggested Citation

  • Theilen, Bernd, 1965-, 2010. "Product differentiation, competitive pressure and the effects of innovation on the success and survivability of firms in oligopoly markets," Working Papers 2072/151550, Universitat Rovira i Virgili, Department of Economics.
  • Handle: RePEc:urv:wpaper:2072/151550
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    Keywords

    Oligopolis; Diferenciació de productes; Competència econòmica; Tecnologia -- Innovacions; Rendiment; 33 - Economia;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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