PROCESS AND PRODUCT INNOVATION IN A VERTICALLY DIFFERENTIATED INDUSTRY

Emanuele Bacchiega, Luca Lambertini () and Andrea Mantovaini ()
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Andrea Mantovaini: Department of Economics, University of Bologna, Strada Maggiore 45, 40125 Bologna, Italy
Authors registered in the RePEc Author Service: Andrea Mantovani

International Game Theory Review (IGTR), 2011, vol. 13, issue 02, 209-221

Abstract: We examine a vertically differentiated duopoly where firms invest in process and product innovation and then compete in prices under full market coverage. We show that (i) process innovation fosters (hinders) product innovation for the low-quality (high-quality) firm; (ii) the firm which is initially more efficient invests more than the rival in process innovation; (iii) if the initial differential between marginal costs is sufficiently high, the demand for the less efficient firm is nil and the duopoly equilibrium does not exist.

Keywords: Vertical differentiation; quality; R&D; L13; O31 (search for similar items in EconPapers)
JEL-codes: B4 C0 C6 C7 D5 D7 M2 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (2)

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http://www.worldscientific.com/doi/abs/10.1142/S0219198911002952
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Related works:
Working Paper: Process and product innovation in a vertically differentiated industry (2007)
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DOI: 10.1142/S0219198911002952

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