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Two state capital accumulation with heterogenous products: Disruptive vs. non-disruptive goods |
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| Authors: | Jonathan P Caulkins Gustav FeichtingerDieter Grass Richard F HartlPeter M Kort |
| Institution: | a Carnegie Mellon University, Heinz College and Qatar Campus, 5000 Forbes Ave., Pittsburgh, PA 15237, USA b Technical University Vienna, Austria c University of Vienna, Austria d Tilburg University, the Netherlands e University of Antwerp, Belgium |
| Abstract: | The paper considers the problem of a firm that, while producing a standard product, has the option to introduce an innovative product. The innovative product competes with the standard product and will therefore reduce revenues of the standard product. A distinction is made between innovative products that do or do not become even more relatively appealing as their market share grows (e.g., because of network externalities). It is shown that in the former case, which we call a “disruptive” good, history dependent long run equilibria can occur, which are in line with recent real life economic examples. |
| Keywords: | Investment Product innovation Maximum principle Skiba curve |
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