R&D productivity and the nexus between product substitutability and innovation: Theory and experimental evidence

Christos Ioannou, Miltiadis Makris and Carmine Ornaghi

Journal of Economic Behavior & Organization, 2021, vol. 186, issue C, 135-151

Abstract: The present study proposes a theoretical model that investigates how R&D productivity influences the relationship between product substitutability and R&D investment in a duopolistic market. We argue that the effects on R&D investment are more complex than the previous literature suggests. We show theoretically that, in unlevelled industries, the laggard’s R&D investment decreases with product substitutability regardless of the R&D productivity level. In sharp contrast, in levelled industries, whether R&D investment increases or decreases with product substitutability depends crucially on the level of the R&D productivity. We choose parameters and formulate testable predictions that we take to the laboratory. We find that subjects’ behavior is largely consistent with the model’s predictions.

Keywords: Duopoly; R&D productivity; Product substitutability; Experiments (search for similar items in EconPapers)
JEL-codes: C12 C72 C91 L13 (search for similar items in EconPapers)
Date: 2021
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Working Paper: R&D Productivity And The Nexus Between Product Substitutability And Innovation: Theory And Experimental Evidence (2021)
Working Paper: R&D Productivity And The Nexus Between Product Substitutability And Innovation: Theory And Experimental Evidence (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:186:y:2021:i:c:p:135-151

DOI: 10.1016/j.jebo.2021.03.027

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