2005•International journal of business and economicsRequires access

Process versus Product Innovation in Multiproduct Firms

Iordanis Petsas, Christos I. Giannikos

Abstract

This paper develops a differentiated-goods duopoly model in which firms engage in Cournot-Nash quantity competition. The effects of firm size on the choice of R&D effort between process and product innovation are examined. We find that (a) as firms devote more effort to product innovation, given that they are in the product R&D regime, their incentives to switch from product to process innovation increase, and (b) once the firm is in the process R&D regime, it will perform process R&D indefinitely. Key words: multiproduct firms; differentiated goods; product innovation; process innovation JEL classification: L10; L25; O31 1.

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Key concepts: Cournot competition, Duopoly, Incentive, Product innovation, Product (mathematics), Competition (biology), Process (computing), Industrial organization