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Heterogeneous Consumers, Vertical Product Differentiation and the Rate of Innovation

Josef Zweimueller and Johann Brunner ()
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Josef Zweimueller: Department of Economics, Institute for Advanced Studies, Vienna

Authors registered in the RePEc Author Service: Josef Zweimüller ()

No 32, Economics Series from Institute for Advanced Studies

Abstract: This paper studies the impact of income inequality on the level of innovative activities in a model where innovations result in quality improvements. The market for quality goods is characterized by a natural oligopoly with three types of consumers - rich, middle class and poor. In general, we find that for reasons of strategic price setting a more equal distribution of income is favourable for innovation incentives. This is consistent with empirical evidence suggesting that countries with a more equal distribution of income have grown faster.

Keywords: Inequality; Income Distribution; Heterogeneity; Innovation; Endogeneous Growth; Product Quality; Vertical Product Differentiation (search for similar items in EconPapers)
JEL-codes: O31 L15 L16 D43 H23 (search for similar items in EconPapers)
Date: 1996-06
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