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Product innovation and product innovation marketing: theory and microeconometric evidence

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  • Kaiser, Ulrich

Abstract

This paper derives a three stage Cournot?oligopoly game for product innovation, expenditure on introducing the product and competition on the product market. Product innovation is assumed to increase consumer utility but is effective only if the innovating firm invests in marketing, so that consumers become aware of the newly developed product. Firms first decide whether or not to conduct product innovation and then determine their expenditure for bringing the new product to the market. In the final stage of the game, they are involved in competition on the product market. Key findings of the theoretical model are that both the marketing of a product innovation and a firm?s propensity to introduce an innovation decrease with an increase in the number of competitors and the degree of product substitutability. An increase in market demand has a positive effect on product innovation and marketing effort. These findings are tested empirically using survey data from 519 German service sector firms which mainly produce consumer goods. A simultaneous sequential Tobit model is applied in the empirical part of this paper. It turns out that the predictions of the theoretical model are supported by the empirical findings.

Suggested Citation

  • Kaiser, Ulrich, 2001. "Product innovation and product innovation marketing: theory and microeconometric evidence," ZEW Discussion Papers 01-31, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  • Handle: RePEc:zbw:zewdip:5386
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    File URL: https://www.econstor.eu/bitstream/10419/24452/1/dp0131.pdf
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    References listed on IDEAS

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    1. 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.
    2. Cohen, Wesley M & Klepper, Steven, 1996. "Firm Size and the Nature of Innovation within Industries: The Case of Process and Product R&D," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 232-243, May.
    3. G. Reza Arabsheibani & Alan Marin & Jonathan Wadsworth, 2005. "Gay Pay in the UK," Economica, London School of Economics and Political Science, pages 333-347.
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    Cited by:

    1. Danny García, 2007. "Innovation and Growth: A Survey of the Literature and a Case Study for Latin America," REVISTA ECOS DE ECONOMÍA, UNIVERSIDAD EAFIT, October.
    2. Wittkopp, Antje, 2002. "Marktstruktur, Innovationsaktivität und Profitabilität der deutschen Ernährungswirtschaft: Das Beispiel Functional Food," FE Working Papers 0205, Christian-Albrechts-University of Kiel, Department of Food Economics and Consumption Studies.

    More about this item

    Keywords

    econometric models; game theory; new product research;

    JEL classification:

    • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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