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Process Innovations in a Duopoly with Two Regions

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  • Olof Ejermo
  • Börje Johansson

Abstract

We extend previous models of duopolies by introducing regions. This analysis highlights how incentives to conduct process R&D are affected by increasing regional distance, and the effect that agglomeration (in terms of population) has on two firms producing a high- and low-quality good respectively. We find that, under reasonable assumptions, an increase in transport costs (regional distance), raises the incentive to conduct process R&D for the high-quality good, while the reverse is true for the low-quality good. Transport costs generally lower production. We interpret this result to arise because the high quality good can more easily regain (some) market output, due to its high quality, which gives an impetus for process R&D. The second result is that an increase in agglomeration in the high-quality region, lowers the incentive to conduct process R&D for the high-quality good, while the opposite is true for the low-quality good. This seems consistent with a view of spatial product life-cycles where process R&D is increasingly moved to 'peripheral' regions as agglomerative tendencies continue in high-quality output regions.

Suggested Citation

  • Olof Ejermo & Börje Johansson, 2003. "Process Innovations in a Duopoly with Two Regions," ERSA conference papers ersa03p265, European Regional Science Association.
  • Handle: RePEc:wiw:wiwrsa:ersa03p265
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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