Strategic R&D and the innovation of products: understanding the role of time preferences and product differentiation

Jason M. Walter, Jeffrey M. Peterson

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

Abstract

We evaluate the effects of innovation on competition using an optimal control approach that incorporates firms' time preferences. Using a model where firm(s) innovates by investing in research and development to create a more appealing product for heterogeneous consumers, we examine conditions that maximize social welfare. When firm(s) choose discount rate regardless of market structure, a monopoly will develop more innovative products. However, we show that duopolies may increase innovation if competition alters firms' outlook. Finally, we identify firm incentives to behave myopically, which in the context of collusion may impede industry-wide innovation.

Original languageEnglish (US)
Pages (from-to)575-595
Number of pages21
JournalEconomics of Innovation and New Technology
Volume26
Issue number7
DOIs
StatePublished - Oct 3 2017

Keywords

  • Dynamic R&D
  • firm outlook
  • product appeal

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