IDEAS home Printed from https://ideas.repec.org/p/wzb/wzebiv/fsiv99-19.html
   My bibliography  Save this paper

The Impact of R&D Subsidies on the Introduction of New Products by Incumbent Firms old title -(New Product Introduction by Incumbent Firms)

Author

Listed:
  • Ralph Siebert

Abstract

This paper analyzes the impact of R&D subsidies on incumbent firms to introduce new goods. We are especially interested in investigating various consequences of government subsidies for R&D, provided to firms that o.er products of di.erent qualities. This study examines the incentives of incumbent firms to introduce new products of various quality, their prices, as well as the product variety o.ered on the market. We find that the innovator always introduces a new product of higher quality and withdraws the existing product from the market. Providing an R&D subsidy to a high-quality firm results in a new product with higher quality than an R&D subsidy provided to a low-quality firm, at the expense of all consumers paying higher prices for all goods in the market. When the R&D subsidy is small, the low quality firm may not introduce a new product into the market, given that R&D costs for quality improvement are high and the degree of product differentiation is small. ZUSAMMENFASSUNG - (Neue Produkteinführung etablierter Unternehmen) In dieser Studie untersuchen wir die Anreize etablierter Unternehmen, neue Produkte mit unterschiedlicher Qualität in den Markt einzuführen. Wir betrachten ein Duopol, in dem jedes Unternehmen ein Produkt mit unterschiedlicher Qualität anbietet und nehmen an, daß ein technologischer Fortschritt die Produktionstechnologie eines Unternehmens (der potentielle Innovator) beeinflußt, um ein neues Produkt in den Markt einzuführen. Der Innovator hat die Möglichkeit das alte Produkt vom Markt abzuziehen. Wir zeigen, daß die Entscheidung, ein neues Produkt in den Markt einzuführen, von den Produktionskosten für Qualität, und den vorigen Produktqualitäten abhängt. Der Innovator führt ein neues Produkt mit höherer Qualität ein und zieht das alte Produkt aus dem Markt,um einen höheren Preiswettbewerb und einen Nachfrageverdrängungseffekt zu vermeiden. Folglich werden nur zwei Produkte im Markt angeboten.

Suggested Citation

  • Ralph Siebert, 1999. "The Impact of R&D Subsidies on the Introduction of New Products by Incumbent Firms old title -(New Product Introduction by Incumbent Firms)," CIG Working Papers FS IV 99-19, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG), revised Aug 2003.
  • Handle: RePEc:wzb:wzebiv:fsiv99-19
    as

    Download full text from publisher

    File URL: http://skylla.wz-berlin.de/pdf/1999/iv99-19r.pdf
    File Function: Full text (revised version)
    Download Restriction: no

    File URL: http://skylla.wz-berlin.de/pdf/1999/iv99-19.pdf
    File Function: Full text (original version)
    Download Restriction: no

    References listed on IDEAS

    as
    1. Hoppe, Heidrun C. & Lee, In Ho, 2003. "Entry deterrence and innovation in durable-goods monopoly," European Economic Review, Elsevier, vol. 47(6), pages 1011-1036, December.
    2. Champsaur, Paul & Rochet, Jean-Charles, 1989. "Multiproduct Duopolists," Econometrica, Econometric Society, vol. 57(3), pages 533-557, May.
    3. Heidrun C. Hoppe & Ulrich Lehmann-Grube, 2001. "Second-Mover Advantages in Dynamic Quality Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(3), pages 419-433, September.
    4. Ulrich Lehmann-Grube, 1997. "Strategic Choice of Quality When Quality is Costly: The Persistence of the High-Quality Advantage," RAND Journal of Economics, The RAND Corporation, vol. 28(2), pages 372-384, Summer.
    5. Timothy F. Bresnahan & Robert J. Gordon, 1996. "The Economics of New Goods," NBER Books, National Bureau of Economic Research, Inc, number bres96-1, April.
    6. Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," Review of Economic Studies, Oxford University Press, vol. 49(1), pages 3-13.
    7. Aron, Debra J & Lazear, Edward P, 1990. "The Introduction of New Products," American Economic Review, American Economic Association, vol. 80(2), pages 421-426, May.
    8. Steven T. Berry & Joel Waldfogel, 1999. "Free Entry and Social Inefficiency in Radio Broadcasting," RAND Journal of Economics, The RAND Corporation, vol. 30(3), pages 397-420, Autumn.
    9. Shabtai Donnenfeld & Shlomo Weber, 1995. "Limit Qualities and Entry Deterrence," RAND Journal of Economics, The RAND Corporation, vol. 26(1), pages 113-130, Spring.
    10. Pakes, Ariel & Berry, Steven & Levinsohn, James A, 1993. "Applications and Limitations of Some Recent Advances in Empirical Industrial Organization: Price Indexes and the Analysis of Environmental Change," American Economic Review, American Economic Association, vol. 83(2), pages 241-246, May.
    11. Amil Petrin, 2002. "Quantifying the Benefits of New Products: The Case of the Minivan," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 705-729, August.
    12. Caplin, Andrew & Nalebuff, Barry, 1991. "Aggregation and Imperfect Competition: On the Existence of Equilibrium," Econometrica, Econometric Society, vol. 59(1), pages 25-59, January.
    13. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
    14. Donnenfeld, Shabtai & Weber, Shlomo, 1992. "Vertical product differentiation with entry," International Journal of Industrial Organization, Elsevier, vol. 10(3), pages 449-472, September.
    15. Lerner, Josh, 1999. "The Government as Venture Capitalist: The Long-Run Impact of the SBIR Program," The Journal of Business, University of Chicago Press, vol. 72(3), pages 285-318, July.
    16. Choi, Chong Ju & Shin, Hyun Song, 1992. "A Comment on a Model of Vertical Product Differentiation," Journal of Industrial Economics, Wiley Blackwell, vol. 40(2), pages 229-231, June.
    17. Shaked, Avner & Sutton, John, 1983. "Natural Oligopolies," Econometrica, Econometric Society, vol. 51(5), pages 1469-1483, September.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Asymmetric Firms; Innovation; New Product Introduction; Subsidies; Technology Policy; Vertical Product Differentiation.;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wzb:wzebiv:fsiv99-19. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jennifer Rontganger). General contact details of provider: http://edirc.repec.org/data/cicwzde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.