Adoption of Product and Process Innovations in Differentiated Markets: The Impact of Competition

Pia Weiss ()

Review of Industrial Organization, 2003, vol. 23, issue 3_4, 314 pages

Abstract: The paper examines the effects of the degree of competition on firms' decisions to innovate in differentiated markets. Firms favor product innovations if they produce close substitutes (so competition is severe) and favor process innovations if products are differentiated (so competition is less severe). Assumptions on the strategic complementarity of product and process innovations and on the decreasing returns of a product innovation are found to be the critical assumptions in the sense of Milgrom and Roberts (1994).

Date: 2003
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