Product versus Process: Innovation Strategies of Multi-Product Firms

Lisandra Flach and Michael Irlacher

No 11922, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We investigate the effects of better access to foreign markets on innovation strategies of multi-product firms in industries with different scope for product differentiation. Industry-specific demand and cost linkages induce a distinction between the returns to innovation. In differentiated industries, cannibalization is lower and firms invest more in product innovation. In homogeneous industries, firms internalize intra-firm spillovers and invest more in process innovation. Using firm-level data and large exchange rate devaluations, we show that better access to foreign markets increases the incentive to innovate. However, we exploit differential effects across industries and show that the innovation strategies depend on the scope of differentiation.

Keywords: Multi-product firms; Innovation; Cannibalization effect; Spillovers; Market size effect; Product differentiation (search for similar items in EconPapers)
JEL-codes: F12 F14 L25 (search for similar items in EconPapers)
Date: 2017-03
New Economics Papers: this item is included in nep-bec, nep-com, nep-ino, nep-sbm and nep-tid
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Product versus Process: Innovation Strategies of Multiproduct Firms (2018)
Working Paper: Product versus Process: Innovation Strategies of Multi-Product Firms (2015)
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