Product innovation with partial capacity rollover

被引:0
作者
Herbert Dawid
Michael Kopel
Peter M. Kort
机构
[1] Bielefeld University,Department of Business Administration and Economics and Center for Mathematical Economics
[2] University of Graz,Department of Organization and Economics of Institutions
[3] Tilburg University,Department of Econometrics and Operations Research & CentER
[4] University of Antwerp,Department of Economics
来源
Central European Journal of Operations Research | 2020年 / 28卷
关键词
Dynamic duopoly; Product innovation; Capital accumulation; Differential games; Markov perfect equilibrium; Capacity rollover;
D O I
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中图分类号
学科分类号
摘要
This paper analyzes how the transferability of production capacities from an established to a new product influences the incentives of a firm to invest in R&D. A dynamic duopoly model is considered, where initially both firms offer a homogeneous product. The firms invest in production capacities and simultaneously in R&D which determines their innovation rate. The firm that innovates first extends its product line and obtains a patent for the new product that prevents the other firm from catching up. Upon the launch of the new product, the innovator then has the option to transfer part of the capacity for the established product to the production process of the new product. If capacities can be rolled over to the new product, a trade-off can be detected in that this rollover option gives the larger firm more incentive to innovate, whereas the cannibalization effect gives the smaller firm a higher innovation incentive. As a logical consequence we find that the larger firm is expected to innovate first when the capacity transfer does not involve a too high capacity loss. However, if the losses of capacity transfer are considerable, the cannibalization effect starts to dominate and the smaller firm’s incentive to innovate is larger.
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页码:479 / 496
页数:17
相关论文
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