Competition and product innovation in dynamic oligopoly |
| |
Authors: | Ronald L Goettler Brett R Gordon |
| |
Institution: | 1. Simon School of Business, University of Rochester, River Campus Box 270100, Rochester, NY, 14627, USA 2. Columbia Business School, Columbia University, 3022 Broadway, New York, NY, 10027, USA
|
| |
Abstract: | We investigate the relationship between competition and innovation using a dynamic oligopoly model that endogenizes both the long-run innovation rate and market structure. We use the model to examine how various determinants of competition, such as product substitutability, entry costs, and innovation spillovers, affect firms’ equilibrium strategies for entry, exit, and investment in product quality. We find an inverted-U relationship between product substitutability and innovation: the returns to innovation initially rise for all firms but eventually, as the market approaches a winner-take-all environment, laggards have few residual profits to fight over and give up pursuit of the leader, knowing he will defend his lead. The increasing portion of the inverted-U reflects changes in firm’s investment policy functions, whereas the decreasing portion arises from the industry transiting to states with fewer firms and wider quality gaps. Allowing market structure to be endogenous yields different results compared to extant work that fixes or exogenously varies the market structure. |
| |
Keywords: | |
本文献已被 SpringerLink 等数据库收录! |
|