Publication
Title
Product innovation incentives by an incumbent firm : a dynamic analysis
Author
Abstract
We employ a dynamic framework to study how product innovation activities of a firm are influenced by its investments in production capacity of an established product and vice versa. The firm initially has capacity to sell an established product. Additionally, it also has the option to undertake an R&D project, which upon completion allows the firm to introduce a new vertically and horizontally differentiated product to the market, thereby extending its current product range. The breakthrough probability of detecting the new product depends on both the value of the firm's R&D stock and its current R&D investment. It is shown that the initial production capacity for the established product influences the intensity of R&D activities of the firm. In particular, there are constellations such that for large initial production capacity for the established product the firm never invests in R&D and the new product is never introduced. For small initial capacity the firm keeps investing in R&D implying that eventually the new product is always introduced. Finally, for an intermediate range of initial capacity levels the firm initially invests in product R&D, but then reduces these investments to zero. In this scenario the new product is introduced with a positive probability, which is however substantially smaller than 1. From a technical perspective this analysis gives the example of a new type of Skiba threshold phenomenon in the framework of a multi-mode optimization model. (C) 2015 Elsevier B.V. All rights reserved.
Language
English
Source (journal)
Journal of economic behavior and organization. - Amsterdam
Publication
Amsterdam : 2015
ISSN
0167-2681
Volume/pages
117(2015), p. 411-438
ISI
000361578700028
Full text (Publisher's DOI)
Full text (open access)
The author-created version that incorporates referee comments and is the accepted for publication version Available from 01.09.2018
Full text (publisher's version - intranet only)
UAntwerpen
Faculty/Department
Research group
[E?say:metaLocaldata.cgzprojectinf]
Implications of real options analysis for industrial organization and competition policy.
Publication type
Subject
Affiliation
Publications with a UAntwerp address
External links
Web of Science
Record
Identification
Creation 13.11.2015
Last edited 23.09.2017
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