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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

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.

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