TY - JOUR
T1 - Diversification
T2 - A road to inefficiency in product innovations?
AU - Dawid, Herbert
AU - Reimann, Marc
PY - 2011/5
Y1 - 2011/5
N2 - 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.
AB - 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.
KW - Agent-based simulation
KW - Product diversification
KW - Product innovation
KW - Time-to-market
U2 - 10.1007/s00191-010-0207-z
DO - 10.1007/s00191-010-0207-z
M3 - Article
AN - SCOPUS:79954629041
SN - 0936-9937
VL - 21
SP - 191
EP - 229
JO - Journal of Evolutionary Economics
JF - Journal of Evolutionary Economics
IS - 2
ER -