Product Innovation Incentives

Download or read book Product Innovation Incentives written by Yongmin Chen and published by . This book was released on 2013 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: In contrast to Arrow's result for process innovations, we show that the gain from a product innovation can be larger to a secure monopolist than to a rivalrous firm that would face competition from independent sellers of the old product. A monopolist incurs profit diversion from its old good but may gain more than a rivalrous firm on the new good by coordinating the prices. In a Hotelling framework, we find simple conditions for the monopolist's gain to be larger. We also explain why the ranking of innovation incentives differs under vertical product differentiation.