Diversification: A road to inefficiency in product innovations?

Herbert Dawid*, Marc Reimann

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

9 Citations (Scopus)

Abstract

Motivated by recent empirical observations made in industries such as the automobile industry, this paper employs an agent-based industry simulation model to examine the strategic relationship between product diversification strategies and some aspects of the product innovation strategy of a single producer. In particular, it is established that an increase in the average degree of product diversification in an industry increases the incentive for a producer to reduce the time to market for innovations at the expense of product quality. However, if all firms adapt their strategies according to these incentives, this results in a severe loss of average firm profits in the industry and also to a reduction in consumer surplus. It is then studied how the strength of this dilemma depends on several parameters describing the market structure and patent policy.

Original languageEnglish
Pages (from-to)191-229
Number of pages39
JournalJournal of Evolutionary Economics
Volume21
Issue number2
Early online date23 Dec 2010
DOIs
Publication statusPublished - May 2011

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