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Do Process Innovations Induce Product Ones?

Author

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  • Maria Rosa Battaggion

    (Department of Economics, University of Bergamo)

  • Piero Tedeschi

    (Department of Statistics, University of Milan-Bicocca)

Abstract

We study the relationship between process and product innovations in vertically differentiated duopolies. A process innovation can lead two competing firms to improve the quality of their goods introducing a product innovation. In fact, a cost reducing innovation has two effects: it spurs production and it enhances price competition. The former effect induces both firms to increase quality. The latter encourages differentiation, inducing low quality firm to decrease it. Therefore, high quality firm always improves its quality, while the other may or may not. The prevailing effect depends on the nature of quality costs (fixed or variable).

Suggested Citation

  • Maria Rosa Battaggion & Piero Tedeschi, 2006. "Do Process Innovations Induce Product Ones?," Working Papers (-2012) 0601, University of Bergamo, Department of Economics.
    • Handle: RePEc:brg:wpaper:0601
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    References listed on IDEAS

    as
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    6. Lin, Ping & Saggi, Kamal, 2002. "Product differentiation, process R&D, and the nature of market competition," European Economic Review, Elsevier, vol. 46(1), pages 201-211, January.
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    8. Mukesh Eswaran & Nancy Gallini, 1996. "Patent Policy and the Direction of Technological Change," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 722-746, Winter.
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    Cited by:

    1. Yunhee Kim, 2015. "Environmental, Sustainable Behaviors and Innovation of Firms During the Financial Crisis," Business Strategy and the Environment, Wiley Blackwell, vol. 24(1), pages 58-72, January.

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