International Journal of Business and Economics Volume 4, No. 3 December, 2005

Process versus Product Innovation in Multiproduct Firms

Iordanis Petsas

Department of Economics and Finance, University of Scranton, U.S.A.

Christos Giannikos

Department of Economics and Finance, Baruch College, U.S.A. & Columbia University

Abstract

This paper develops a differentiated-goods duopoly model in which firms engage in Cournot-Nash quantity competition. The effects of firm size on the choice of R&D effort between process and product innovation are examined. We find that (a) as firms devote more effort to product innovation, given that they are in the product R&D regime, their incentives to switch from product to process innovation increase, and (b) once the firm is in the process R&D regime, it will perform process R&D indefinitely.

Keywords： multiproduct firms, differentiated goods, product innovation, process innovation.

JEL Classifications：L10, L25, O31.

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