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Innovation incentives in an intergrated marketed with vertical product differentiation

Author

Listed:
  • Rajat Acharyya

    (Department of Economics, Jadavpur University)

  • Prabal Roy Chowdhury

    (Indian Statistical Institute, New Delhi)

Abstract

This paper examines whether integration of national markets fosters innovation in the technologically inferior country. In a simple set up where a technologically backward home firm and a technologically advanced foreign firm compete in qualities and prices in an integrated market, we find that the outcome depends on the speed of response of the two firms and their initial technological distance. If the domestic firm is not too far behind the foreign firm to begin with, and if it responds faster, then the technological gap may get reversed. Further, we find that integration may be welfare improving for both the countries. There are, however, distributional implications. While the consumers always gain from such integration, the firms may not.

Suggested Citation

  • Rajat Acharyya & Prabal Roy Chowdhury, 2006. "Innovation incentives in an intergrated marketed with vertical product differentiation," Discussion Papers 06-02, Indian Statistical Institute, Delhi.
    • Handle: RePEc:alo:isipdp:06-02
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    References listed on IDEAS

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    More about this item

    Keywords

    Innovation; Technological Gap; Market Integration; Quality Competition;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • F15 - International Economics - - Trade - - - Economic Integration
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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