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Trash It Or Sell It? A Strategic Analysis Of The Market Introduction Of Product Innovations

Author

Listed:
  • HERBERT DAWID

    (Department of Business Administration, and Economics and Institute of Mathematical Economics, Bielefeld University, P.O. Box 100131, 33501 Bielefeld, Germany)

  • MICHAEL KOPEL

    (Institute of Organization and Economics of Institutions, University of Graz, Universitaetsstrasse 15, 8010 Graz, Austria)

  • THOMAS DANGL

    (Institute of Management Science, Vienna University of Technology, Theresianumgasse 27, 1040 Vienna, Austria)

Abstract

In this paper a quantity-setting duopoly is considered where one firm develops a new product which is horizontally differentiated from the existing product. The main question examined is which strategically important effects occur if the decision to develop the innovation and the decision to introduce the new product in the market are separated. In our multi-stage game the firm's launch decision is explicitly taken into account. We find an equilibrium where the competitor of the potential innovator strategically over-invests in process innovation in order to push the potential innovator to introduce the new product since this reduces competition for the existing product. It is shown that this effect has positive welfare implications in comparison with the case where the innovator commits ex ante to launching the new product.

Suggested Citation

  • Herbert Dawid & Michael Kopel & Thomas Dangl, 2009. "Trash It Or Sell It? A Strategic Analysis Of The Market Introduction Of Product Innovations," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 11(03), pages 321-345.
    • Handle: RePEc:wsi:igtrxx:v:11:y:2009:i:03:n:s0219198909002340
    DOI: 10.1142/S0219198909002340
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    Cited by:

    1. Dawid, Herbert & Kopel, Michael & Kort, Peter M., 2010. "Innovation threats and strategic responses in oligopoly markets," Journal of Economic Behavior & Organization, Elsevier, vol. 75(2), pages 203-222, August.
    2. Colombo, Luca & Labrecciosa, Paola, 2022. "Product quality differentiation in a renewable resource oligopoly," Journal of Environmental Economics and Management, Elsevier, vol. 111(C).

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    More about this item

    Keywords

    Product innovation; process innovation; market introduction; innovation incentives; L13; O31;
    All these keywords.

    JEL classification:

    • B4 - Schools of Economic Thought and Methodology - - Economic Methodology
    • C0 - Mathematical and Quantitative Methods - - General
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics

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