TY  - GEN
AB  - This paper analyzes how the transferability of production capacities from an established
to a new product influences the incentives of a firm to invest in R&D. A
dynamic duopoly model is considered, where initially both firms offer a homogeneous
product. The firms invest in production capacities and simultaneously in R&D which
determines their innovation rate. The firm that innovates first extends its product line
and obtains a patent for the new product that prevents the other firm from catching
up. Upon the launch of the new product, the innovator then has the option to transfer
part of the capacity for the established product to the production process of the
new product. If capacities can be rolled over to the new product, a trade-off can be
detected in that this rollover option gives the larger firm more incentive to innovate,
whereas the cannibalization effect gives the smaller firm a higher innovation incentive.
As a logical consequence we find that the larger firm is expected to innovate first when
the capacity transfer does not involve a too high capacity loss. However, if the losses
of capacity transfer are considerable, the cannibalization effect starts to dominate and
the smaller firm’s incentive to innovate is larger.
DA  - 2019
DO  - 10.4119/unibi/2934688
KW  - dynamic duopoly
KW  - product innovation
KW  - capital accumulation
KW  - differential games
KW  - Markov perfect equilibrium
KW  - capacity rollover
LA  - eng
PY  - 2019
SN  - 2196-2723
TI  - Product Innovation With Partial Capacity Rollover
UR  - https://nbn-resolving.org/urn:nbn:de:0070-pub-29346880
Y2  - 2024-11-24T18:39:17
ER  -