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Process Innovations in a Duopoly with Two regions
KTH, School of Industrial Engineering and Management (ITM), Industrial Economics and Management (Dept.), Economics.
2004 (English)Report (Other academic)
Abstract [en]

Most models of duopolies with a spatial dimension refer to the ’linear’ or ’circular’ city. Moreover, in duopoly models with innovations, the spatial dimension is usually dropped. We bridge this gap by constructing a model with two regions, each hosting production of a differentiated quality (high and low quality). In addition, consumers are heterogenous with different willingness to pay for quality. The analysis focuses on the incentives for process innovations, which affect the unit cost of production. The model captures two common trends in the urbanization process, and their effects on the incentive for process innovations. The first is regional enlargement or reduced transport costs. We find that such changes raise the proportion of process R&D in the region producing the low-quality good relative to process R&D from the high-quality region. Second, we examine the effect on optimal process R&D of moving consumers from the low-quality to the high-quality region. This lowers the optimal amount of process R&D undertaken in the low-quality region, while it is raised in the high-quality region.

Place, publisher, year, edition, pages
CECIS, KTH Royal Institute of Technology , 2004. , 26 p.
CESIS Working Paper Series in Economics and Institutions of Innovation, 18
Keyword [en]
Regional agglomeration, process innovations, duopoly
National Category
URN: urn:nbn:se:kth:diva-72450OAI: diva2:487607
QC 20120208Available from: 2012-02-08 Created: 2012-01-31 Last updated: 2012-02-08Bibliographically approved

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