Dynamic Investment Strategies and Leadership in Product Innovation

H. Dawid, M.Y. Keoula, M. Kopel, Peter Kort

Research output: Working paperOther research output

Abstract

We employ a dynamic market model with endogenous creation of submarkets to study the optimal product innovation strategies of incumbent firms. Firms invest in production capacity and R&D knowledge stock, where the latter determines the hazard rate of innovation. We find that under Markov Perfect Equilibrium behavior the firm with a larger market share on the established market is less likely to be the first innovator. Investment in R&D knowledge is negatively affected by the opponent's production capacity on the established market if the opponent has not innovated yet. However, this effect is reversed after the opponent has successfully introduced the new product. The firm with higher costs of adjusting capacity for the established product has a larger incentive to engage in product innovation and might even achieve higher long run profit than its more efficient competitor.
Original languageEnglish
Place of PublicationBielefeld
PublisherSSRN
Number of pages30
DOIs
Publication statusIn preparation - 2017

Publication series

NameBielefeld Working Papers in Economics and Management
Volume03-2017

Fingerprint

Investment strategy
Product innovation
Production capacity
Market model
Dynamic markets
Innovators
Knowledge stock
Competitors
Innovation strategy
Hazard rate
Incentives
Innovation
Profit
Incumbents
Markov perfect equilibrium
Market share
New products
Costs

Keywords

  • product innovation strategy
  • capacity investment
  • dynamic competition
  • Markov perfect equilibrium

Cite this

Dawid, H., Keoula, M. Y., Kopel, M., & Kort, P. (2017). Dynamic Investment Strategies and Leadership in Product Innovation. (Bielefeld Working Papers in Economics and Management; Vol. 03-2017). Bielefeld: SSRN. https://doi.org/10.2139/ssrn.2930845
Dawid, H. ; Keoula, M.Y. ; Kopel, M. ; Kort, Peter. / Dynamic Investment Strategies and Leadership in Product Innovation. Bielefeld : SSRN, 2017. (Bielefeld Working Papers in Economics and Management).
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Dawid, H, Keoula, MY, Kopel, M & Kort, P 2017 'Dynamic Investment Strategies and Leadership in Product Innovation' Bielefeld Working Papers in Economics and Management, vol. 03-2017, SSRN, Bielefeld. https://doi.org/10.2139/ssrn.2930845

Dynamic Investment Strategies and Leadership in Product Innovation. / Dawid, H.; Keoula, M.Y.; Kopel, M.; Kort, Peter.

Bielefeld : SSRN, 2017. (Bielefeld Working Papers in Economics and Management; Vol. 03-2017).

Research output: Working paperOther research output

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Dawid H, Keoula MY, Kopel M, Kort P. Dynamic Investment Strategies and Leadership in Product Innovation. Bielefeld: SSRN. 2017. (Bielefeld Working Papers in Economics and Management). https://doi.org/10.2139/ssrn.2930845