Process and Product Innovation and the Role of the Preference Function

Andreas Hoefele

The B.E. Journal of Economic Analysis & Policy, 2016, vol. 16, issue 4, 5

Abstract: In this paper I investigate the relationship between firms’ investment in product and process innovation, in particular how this relationship is affected by the consumer’s valuation for variety. Depending on the strength of the consumer’s value of variety, the aggregate demand increases with a higher degree of product innovation, which I call the market-expansion effect. I show that the two types of investment are positively related if the market expansion effect is strong.

Keywords: preference function; process innovation; product innovation (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1515/bejeap-2013-0132

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