Strategic R&D and the innovation of products: understanding the role of time preferences and product differentiation

Citation data:

Economics of Innovation and New Technology, ISSN: 1043-8599, Vol: 26, Issue: 7, Page: 575-595

Publication Year:
2017
Usage 741
Abstract Views 733
Link-outs 8
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DOI:
10.1080/10438599.2016.1249063
Author(s):
Jason M. Walter, Jeffrey M. Peterson
Publisher(s):
Informa UK Limited
Tags:
Economics, Econometrics and Finance, Business, Management and Accounting
article description
We evaluate the effects of innovation on competition using an optimal control approach that incorporates firms' time preferences. Using a model where firm(s) innovates by investing in research and development to create a more appealing product for heterogeneous consumers, we examine conditions that maximize social welfare. When firm(s) choose discount rate regardless of market structure, a monopoly will develop more innovative products. However, we show that duopolies may increase innovation if competition alters firms' outlook. Finally, we identify firm incentives to behave myopically, which in the context of collusion may impede industry-wide innovation.

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