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Do Process Innovations Induce Product Ones?

April 26, 2017induce Innovations process Product

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Do Process Innovations Induce Product Ones?

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Maria Rosa Battaggion and Piero Tedeschi No 20060509, Working Papers from Università degli Studi di Milano-Bicocca, Dipartimento di Statistica 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). Keywords: Process Innovation; Product Innovation (search for similar items in EconPapers) JEL-codes: D43 O33 (search for similar items in EconPapers) New Economics Papers: this item is included in nep