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Process Innovations in a Duopoly with Two Regions

  • Olof Ejermo

    ()

  • Börje Johansson

    ()

We extend previous models of duopolies by introducing regions. This analysis highlights how incentives to conduct process R&D are affected by increasing regional distance, and the effect that agglomeration (in terms of population) has on two firms producing a high- and low-quality good respectively. We find that, under reasonable assumptions, an increase in transport costs (regional distance), raises the incentive to conduct process R&D for the high-quality good, while the reverse is true for the low-quality good. Transport costs generally lower production. We interpret this result to arise because the high quality good can more easily regain (some) market output, due to its high quality, which gives an impetus for process R&D. The second result is that an increase in agglomeration in the high-quality region, lowers the incentive to conduct process R&D for the high-quality good, while the opposite is true for the low-quality good. This seems consistent with a view of spatial product life-cycles where process R&D is increasingly moved to 'peripheral' regions as agglomerative tendencies continue in high-quality output regions.

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File URL: http://www-sre.wu-wien.ac.at/ersa/ersaconfs/ersa03/cdrom/papers/265.pdf
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Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa03p265.

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Date of creation: Aug 2003
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Handle: RePEc:wiw:wiwrsa:ersa03p265
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  1. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Wiley Blackwell, vol. 49(1), pages 3-13, January.
  2. Rosenkranz, Stephanie, 2003. "Simultaneous choice of process and product innovation when consumers have a preference for product variety," Journal of Economic Behavior & Organization, Elsevier, vol. 50(2), pages 183-201, February.
  3. Jovanovic, B. & MacDonald, G., 1993. "The Life Cycle of a Competitive Industry," Working Papers 93-34, C.V. Starr Center for Applied Economics, New York University.
  4. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
  5. Utterback, James M & Abernathy, William J, 1975. "A dynamic model of process and product innovation," Omega, Elsevier, vol. 3(6), pages 639-656, December.
  6. Gilles Duranton & Diego Puga, 2000. "Nursery Cities: Urban Diversity, Process Innovation and the Life-Cycle of Products," CEP Discussion Papers dp0445, Centre for Economic Performance, LSE.
  7. 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.
  8. d'Aspremont, Claude & Jacquemin, Alexis, 1988. "Cooperative and Noncooperative R&D in Duopoly with Spillovers," American Economic Review, American Economic Association, vol. 78(5), pages 1133-37, December.
  9. Steven Klepper & Kenneth L. Simons, 2000. "The Making of an Oligopoly: Firm Survival and Technological Change in the Evolution of the U.S. Tire Industry," Journal of Political Economy, University of Chicago Press, vol. 108(4), pages 728-760, August.
  10. Segerstrom, Paul S & Anant, T C A & Dinopoulos, Elias, 1990. "A Schumpeterian Model of the Product Life Cycle," American Economic Review, American Economic Association, vol. 80(5), pages 1077-91, December.
  11. Charlie Karlsson, 1997. "Product development, innovation networks, infrastructure and agglomeration economies," The Annals of Regional Science, Springer, vol. 31(3), pages 235-258.
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