Accessible Unlicensed Requires Authentication Published by De Gruyter January 19, 2017

Process and Product Innovation and the Role of the Preference Function

Andreas Hoefele

Abstract:

In this paper I investigate the relationship between firms’ investment in product and process innovation, in particular how this relationship is affected by the consumer’s valuation for variety. Depending on the strength of the consumer’s value of variety, the aggregate demand increases with a higher degree of product innovation, which I call the market-expansion effect. I show that the two types of investment are positively related if the market expansion effect is strong.

References

Basak, D., A. Hoefele, and A. Mukherjee. 2014. Union Bargaining Power and Product Innovation: Relevance of the Preference Function. CESifo Working Paper Series.Search in Google Scholar

Bourreau, M., and P. Dogan. 2010. “Cooperation in Product Development and Process R&D between Competitors.” International Journal of Industrial Organization 28 (2):176–190.Search in Google Scholar

Bowley, A. L. 1924. Mathematical Groundwork of Economics. Oxford University Press.Search in Google Scholar

Dhingra, S. 2013. “Trading Away Wide Brands for Cheap Brands.” American Economic Review 2013 (6):2554–2584.Search in Google Scholar

Lin, P., and K. Saggi. 2002. “Product Differentiation, Process R&D, and the Nature of Market Competition.” European Economic Review 46 (1):201–211.Search in Google Scholar

Qiu, L., and W. Zhou. 2013. “Multiproduct Firms and Scope Adjustment in Globalization.” Journal of International Economics 91 (1):142–153.Search in Google Scholar

Rosenkranz, S. 2003. “Simultaneous Choice of Process and Product Innovation when Consumers have a Preference for Product Variety.” Journal of Economic Behavior & Organization 50 (2):183–201.Search in Google Scholar

Scherer, F., and D. Ross. 1990. Industrial Market Structure and Economic Performance. Houghton Mifflin.Search in Google Scholar

Shubik, M., and R. E. Levitan. 1980. Market Structure and Behavior. Cambridge, MA (USA): Harvard University Press.Search in Google Scholar

Vives X. 2008. “Innovation and Competitive Pressure.” The Journal of Industrial Economics 563.Search in Google Scholar

Weiss, P. 2003. “Adoption of Product and Process Innovations in Differentiated Markets: The Impact of Competition.” Review of Industrial Organization 23:301–314.Search in Google Scholar

Published Online: 2017-1-19
Published in Print: 2016-10-1

©2016 by De Gruyter