R&D intensity and Vertical Differentiation

Ricardo D. Brito (), Eduardo Correia de Souza and Rodrigo Moita ()

No 2021_16, Working Papers, Department of Economics from University of São Paulo (FEA-USP)

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.

Keywords: R&D intensity; Product differentiation; Product market characteristics (search for similar items in EconPapers)
JEL-codes: F14 L10 (search for similar items in EconPapers)
Date: 2021-06-14
New Economics Papers: this item is included in nep-com and nep-ino
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