Publication
Title
Dynamic strategic interaction between an innovating and a non-innovating incumbent
Author
Abstract
This paper analyzes the effects of product innovation on the firms investment behavior in a dynamic duopoly framework. A differential game setting is considered where initially two firms are active on a homogeneous product market. One of the firms has an option to introduce a new product that is horizontally and vertically differentiated from the established product. The resulting differential game has three states corresponding to three capital stocks: one for each firm to produce the established product, and one for the innovating firm to produce the new product. We numerically derive Markov perfect equilibria. One of the most remarkable results is that in most cases the non-innovating firm benefits when the other firm carries out the innovation option. The intuition is that, to increase demand for the innovative product, the innovative firm reduces capacity on the established market, which increases the price of the established product and thus the payoff of the non-innovating firm.
Language
English
Source (journal)
Central European journal of operations research. - New York
Publication
New York : 2010
ISSN
1435-246X
Volume/pages
18:4(2010), p. 453-463
ISI
000284155100003
Full text (Publisher's DOI)
UAntwerpen
Faculty/Department
Research group
Publication type
Subject
Affiliation
Publications with a UAntwerp address
External links
Web of Science
Record
Identification
Creation 23.03.2011
Last edited 04.11.2017
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