Process Innovations in a Duopoly with Two Regions

Olof Ejermo and Börje Johansson

ERSA conference papers from European Regional Science Association

Abstract: 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.

Date: 2003-08
New Economics Papers: this item is included in nep-geo and nep-tid
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Related works:
Working Paper: Process Innovations in a Duopoly with Two Region (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:wiw:wiwrsa:ersa03p265

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