Trash it or Sell it? A Strategic Analysis of the Market Introduction of Product Innovations

42 Pages Posted: 17 Jul 2008

See all articles by Herbert Dawid

Herbert Dawid

Bielefeld University - Department of Business Administration and Economics; Center for Mathematical Economics

Michael Kopel

University of Graz

Thomas Dangl

Vienna University of Technology

Multiple version iconThere are 2 versions of this paper

Date Written: April 2006

Abstract

In this paper a quantity-setting duopoly is considered where one firm develops a new product which is horizontally differentiated from the existing product. The main question examined is which strategically important effects occur if the decision to develop the innovation and the decision to introduce the new product in the market are separated. In our multi-stage game the firm's launch decision is explicitly taken into account and we find an equilibrium where the competitor of the potential innovator strategically over-invests in process innovation. In this equilibrium the competitor over-invests in order to push the potential innovator to introduce the new product since this reduces the competition for the existing product. It is shown that this effect has positive welfare implications in comparison with the case where the innovator commits ex ante to launching the new product.

Keywords: product/process innovation, market introduction, innovation incentives

JEL Classification: L13, O31

Suggested Citation

Dawid, Herbert and Kopel, Michael and Dangl, Thomas, Trash it or Sell it? A Strategic Analysis of the Market Introduction of Product Innovations (April 2006). Available at SSRN: https://ssrn.com/abstract=902024 or http://dx.doi.org/10.2139/ssrn.902024

Herbert Dawid

Bielefeld University - Department of Business Administration and Economics ( email )

P.O. Box 100131
D-33501 Bielefeld, NRW 33501
Germany
+49-521-1064843 (Phone)
+49-521-1062994 (Fax)

Center for Mathematical Economics ( email )

Postfach 10 01 31
Bielefeld, D-33501
Germany

Michael Kopel (Contact Author)

University of Graz ( email )

Universitaetsstrasse 15 / FE
A-8010 Graz, 8010
Austria

Thomas Dangl

Vienna University of Technology ( email )

Theresianumgasse 27
Vienna, A-1040
Austria

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